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Taking a “fresh look” at governance—including the appointment of outside directors—is one step audit firms can take to meet the high expectations of corporate investors, a top Securities and Exchange Commission official told a financial reporting conference.
SEC Chief Accountant Wes Bricker also said that audit firms should share with the audit committees that hire them details about their board’s makeup, responsibilities, and why an outside director could be considered independent.
“The leaders of largest, most complex firms have appointed or are now taking steps to appoint independent directors,” Bricker said during his address to the annual Baruch College Financial Reporting Conference in New York. His speech focused on audit quality and the profession’s ability to maintain trust among clients and investors.
“They understand that the benefits of outside perspectives can translate to audit firm governance.”
Bricker didn’t name the firms that have updated their boards or are taking steps to do so. However, KPMG LLP announced last week that it would add as many as three external directors to its board. PricewaterhouseCoopers LLP added external board members last year.
Bricker told Bloomberg Tax that the addition of the external directors was an important change because it would help to strengthen the firms and help them to plan for serving investor needs today and in the future.
The Big Four accounting firms serve as the auditors to the largest publicly traded U.S. corporations, and their audit reports play a key role in the financial markets by ensuring the reliability of a company’s finances to investors.
Outrage against lending abuses at Wells Fargo & Co. and accounting problems at General Electric Corp. shook shareholders’ confidence in the companies’ auditor, KPMG, in recent weeks. A shareholder revolt tried unsuccessfully to force the companies to fire the firm.
KPMG also suffered a black eye earlier this year when three of its employees were arrested and charged with trying to steal audit examination details from the Public Company Accounting Oversight Board.
“Auditing is about confidence and trust in the transparency, the accuracy, and the reliability of the financial information,” Bricker said. “The profession most continue to focus, and in some respects do more, to maintain and nurture trust.”
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