James Doty, the new PCAOB chairman, on the problem with audits:
“As with management, audit committees see their jobs as negotiating the lowest possible audit fee, not championing audit objectivity and independence from management,” said Doty. “I think that’s a problem. In this environment, not surprisingly, the scope of the audit has not grown or expanded, even if society’s expectations have. The audit is arguably as important to our society and this culture as electricity or water. To retain that lofty status, auditors and the PCAOB need to do our best to make sure the audit is useful.”
The scope of an audit may not have “grown or expanded”, but one thing is for certain: the scope and precision of the audit documentation certainly has. With the downward pressure on audit fees, and increase the pressure of regulations (i.e., PCAOB inspection), its hard to see how the whole system won’t break.
Mr. Doty has a tough job and as he says, “there’s no silver bullet”. It may be easier to herd cats.
