First, some have suggested that providing consulting services to an entity is absolutely essential to providing high-quality audit services to that same entity.
Presumably, these firms have considered the effects of their actions on the quality of their audit work
In recent years, 75 to 80 percent of all publicentities buy little or no consulting services from their auditors. The POB panel report includes a finding that where consulting services are provided to an audit client, in 75 percent of the cases, they are neutral or have no direct impact on audit quality.
Combine these factors, extrapolate the panel’s findings to the universe of public companies, and you would conclude that in more than 90 percent of all audits, consulting services have no direct effect on the quality of the audit service either because they weren’t provided to the client or because, if they were provided, they did not have any direct bearing on audit effectiveness.
And I would have to suggest that the quality of 90-plus, closer to 95 percent of all audits have certainly not been adversely affected by the absence of providing consulting services to those same entities.
I believe that the panel had substantially completed its work prior to these changes taking place in the structure of one firm and the possible changes taking place in the structure of others
The second assertion about the impact on quality to me is much more likely to be relevant and is much more difficult, and that is the assertion that the specialists necessary to assist and support the audit function may not be attracted to and retained by the firms for one of a number of reasons, including because certain services in their areas of expertise cannot be provided to the firm’s audit clients or perhaps because consulting is separated from the firm as a consequence of limitations imposed on consulting services.
I’m not able to predict the likelihood of this outcome. What I would strongly suggest is that the Commission must seek the best evidence available to it to evaluate this assertion.
To date, one firm, one very large firm, has separated online installment loans instant approval Madison its consulting practice, and two others are reported to be well along in doing the same thing. I would presume with the attention given to this issue that that would have been considered at the appropriate levels of those firms.
I would suggest that the Commission should ask the same question that an audit committee, perhaps, would ask of these firms for two reasons.
One, I think you should see if there is any reason for you to be concerned about the quality of the audit work done by these firms. There is a huge public interest in the effectiveness of their audits, and any reduction in thequality of their work as a consequence of these changes in their structure would be a very serious matter for you to consider.
Secondly, in asking them for comments with respect to the impact of these changes on the quality of their audits, their responses, I believe, concerning audit quality should then be compared to the assertions of other firms to the effect that they are unable or would be unable to maintain audit quality without keeping their consulting practices under the same roof in the same organization.
I thought about how to go about this and just offer a suggestion that perhaps it would be appropriate, if the Commission pleased, for the Public Oversight Board to be asked to consider making these inquiries and making these comparisons and reporting their finding and conclusions as a follow-up to the work of their Panel on Audit Effectiveness.