It’s no secret that certain folks at the SEC have been particularly focused on auditor independence as of late. Acting Chief Accountant Paul Munter has issued a couple of statements on the topic and the Division of Enforcement is casting a net for gatekeeper wrongdoing. One thing that would seem to pretty obviously undercut auditor independence would be to have your independent auditor participate in the CFO interview process, but the SEC brought an enforcement action just a few weeks ago that alleges that an audit partner did this … which would be problematic, if true.
Meanwhile, the Center for Audit Quality has been sharing a series of videos and analyses on the value of auditor independence — including a post in support of the current model of auditor independence, which stems from the Sarbanes-Oxley Act and related reforms.
The CAQ says that criticisms of the current model fail to consider vital regulatory and voluntary components that safeguard auditor independence. One of these factors is the role of the audit committee. Here’s an excerpt:
In addition to the many safeguards that auditors must follow, the Sarbanes-Oxley Act had the wisdom to reinforce the role of public company boards of directors and their audit committee. SOX requires that the audit committee, not the CEO or CFO, maintain sole responsibility for the hiring, firing, compensation of, and oversight of the external auditor. Audit committee oversight is an important ingredient of auditor independence; external auditors are not reporting to the employees whose work they are reviewing but instead to a committee with fiduciary responsibilities to the company and its investors.
With 20 years of SOX under our belts, it is sometimes easy to be lulled into complacency and forget how critical it is to closely monitor the independence of the audit committee. This CAQ post is a reminder of why it matters — and the SEC’s current enforcement focus shows that now is not the time to let down your guard on this topic. Check out our “Auditor Independence” Practice Area for even more guidance.
— Liz Dunshee, TheCorporateCounsel.net, November 10, 2022