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SEC Staff on Audit Committee Obligations

In December 2013, the Chief Accountant of the Securities and Exchange Commission, Paul Beswick, gave a speech in which he discussed his views of the audit committee’s obligations in selecting and overseeing the auditor. Beswick acknowledged that the audit committee “is best-positioned to determine whether the auditor is providing a high quality audit.” He went on to discuss how challenging it can be to assess audit quality, describing a PCAOB project to identify audit quality indicators.

Beswick then expressed the hope that an audit committee, when making a decision whether to hire or retain an auditor, focus on audit quality, rather than only identifying the low cost provider. “I worry that audit committees may be focusing too much on the amount of the fee and not focusing enough on the expected audit quality.” Beswick cautioned that “the bottom line” should not drive audit committee decisions whether to retain or hire an auditor.

Ominously, he also noted that:

“Moreover, if the audit committee is solely fee hunting and if there was a subsequent audit failure, beyond the obvious problems for the auditor and the company, this may raise questions about the diligence of the members of the audit committee in fulfilling their responsibilities.”

Beswick also spoke directly to accounting firms, saying that in his opinion, the public considers audit firms to be “gatekeepers” and not “consultants.” He noted, “You earn the public’s trust by improving audit quality and by strengthening a firm’s audit function."

The complete remarks can be found here.