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Engaging Constructively in the Policy Process

Wednesday, June 14, 2017

Across myriad issues, the public company auditing profession engages actively and openly in the policy process, providing practical, constructive input.

Public company auditors, in the words of former SEC Chair Mary Jo White, provide “an essential check in the financial reporting process.” Given this vital role, the public company auditing profession has long recognized the importance of sound legislation and regulation (i.e., policy) as a critical part of continuous improvement. On a wide variety of policy initiatives, the profession has engaged with policymakers in the United States and overseas. It has stayed abreast of regulator concerns, offered constructive input, and advocated for effective standard setting and rulemaking.

In the United States, as in many parts of the world, the policymaking process is marked by the exchange of ideas through debate, dialogue, and the formal submission of comments on policy proposals. While the profession’s views may diverge occasionally from policymakers or other stakeholders, the facts are clear—the profession engages constructively on policy issues for the sake of improving audit quality and strengthening investor protection, confidence in the capital markets, and capital formation.

The Profession’s Long History of Constructive Policy Engagement

The accounting profession has a long history of robust and constructive engagement in Washington, including providing input on key policy developments around public company auditing. Take, for example, the watershed policy changes brought about by the Sarbanes-Oxley Act of 2002, including the formation of the Public Company Accounting Oversight Board (PCAOB). “Change is necessary, and we intend to be full partners in driving meaningful and purposeful change,” wrote American Institute of CPAs Chairman William F. Ezzell, Deloitte LLP’s national managing partner of legislative and regulatory relations, in December 2002. “We will give the PCAOB our dedicated assistance and support in all its aspects and dimension.”

Examples of the Profession’s Constructive Policy Engagement

In recent years, the profession’s constructive stance has been evident in a range of issues, such as the following.

  • Enhancing the auditor’s report: The auditing profession has responded actively to various regulatory proposals on updating the auditor’s reporting model (ARM). In the United States, regulators have advanced this issue, and the US auditing profession has provided substantial input to help inform the policy process. Well ahead of a regulatory proposal, the profession hosted workshops on the auditor’s role and reporting. Sessions were attended by investors, CEOs and CFOs, academics, attorneys, former regulators, and other interested parties. The profession went on to submit multiple comment letters with concrete suggestions for a workable approach, including findings from a comprehensive initiative that field-tested the critical audit matters included in the PCAOB’s 2013 proposal on the auditor’s reporting model. When the PCAOB voted unanimously in 2017 to approve its ARM proposal, Center for Audit Quality (CAQ) Executive Director Cindy Fornelli applauded the vote as “a positive step toward continuous improvement of the audit to better serve investors and our capital markets.” Learn more at the CAQ’s ARM policy issues page.
  • The development of audit quality indicators (AQIs). Policymakers in the United States have shown keen interest in defining key elements of audit quality. As proposals have advanced, the US public company auditing profession has taken action and shared insights with policymakers on the topic of AQIs. The profession convened a stakeholder advisory panel (including former regulators), released thought leadership, conducted extensive pilot-testing of specific AQIs, and held roundtables. Learn more at the CAQ’s AQIs policy resource page.
  • The fight against financial reporting fraud: Promoting efforts to deter and detect financial reporting fraud is a top priority for the public company auditing profession, and constructive engagement with regulators has been a key part of the profession’s work in this area. In 2016, for example, representatives from public company auditing and from across the financial reporting supply chain gathered with policymakers for a series of workshops hosted by the Anti-Fraud Collaboration. Featuring participation from key PCAOB and Securities and Exchange Commission (SEC) officials, the workshops explored issues identified in SEC enforcement actions that may have been mitigated by either strong internal control over financial reporting or the application of appropriate accounting policies. As captured in a 2017 report on the workshops, cooperation with regulators was a major theme throughout the events. Learn more about this anti-fraud initiative and more on the CAQ’s anti-fraud resource page.

The Profession’s Enduring Commitment to Policy Engagement

Looking ahead, the public company auditing profession’s policy agenda will likely remain full, given the ever-evolving nature of markets and the need for policymaking to adapt to those needs. Whatever the future holds, public company auditors will continue to work constructively with its regulators and other stakeholders, with the ultimate aim of increasing investor protection and confidence in our markets.