Statement on General Responsibilities of Auditors

Today, the Securities and Exchange Commission is considering whether to approve the final standard and related amendments updating the general responsibilities of auditors when conducting an audit. I am pleased to vote in support of approving this final standard because it would modernize and streamline the core obligations required of auditors.

Currently, auditors are held to a set of foundational standards, such as: due professional care, professional skepticism, independence, competence, reasonable assurance, and professional judgment.[1]

These obligations exist to protect investors. They are the building blocks of an independent audit and are central to investors’ trust in our markets.

Forty years ago, Supreme Court Chief Justice Warren Burger noted the importance of the public’s confidence in the independent auditing process. In United States v. Arthur Young & Company, he wrote, it is “not enough that financial statements be accurate; the public must also perceive them as being accurate.” Further, “public faith in the reliability of a corporation's financial statements depends upon the public perception of the outside auditor as an independent professional.”[2]

Investors need credible, high-quality information when making investment decisions. The quality of such information depends not only on the companies that provide it, but the integrity of the auditors who audited it.

Today’s proposed standard would replace five interim standards, which were originally developed by the American Institute of Certified Public Accountants (AICPA) decades ago and adopted on an interim basis by the Public Company Accounting Oversight Board in 2003.[3] To put this in perspective, some of these standards were the same back when I took, and later taught, undergraduate-level accounting at the University of Pennsylvania.

Since then, technological advancements have introduced new auditing tools and software. The requirements related to risk assessment and independence have changed. Today's audits are not the paper-and-pencil audits of 50 years ago, and the profession should have a standard that reflects today’s digital reality.

This proposed standard, AS 1000, would modernize and streamline the general principles and responsibilities of auditors. Doing so makes it easier for auditors to understand, apply, and fulfill their duties to investors.

In addition, the proposed standard would update the auditor’s objective to cover both a financial statements audit, as well as an audit of internal control over financial reporting. More explicitly, it would tie the auditor’s independence obligations to PCAOB and SEC independence rules.

Audit engagement partners have a responsibility to act with due professional care. Importantly, the proposed standard would clarify the engagement partner’s existing responsibilities for supervision and review of the engagement.

The proposed standard also clarifies the meaning of the term, “presents fairly.” Today, “presents fairly” is a reference to preparing financial statements in accordance with Generally Accepted Accounting Principals (GAAP).[4] The revision would change this reference to preparing financial statements in accordance with the applicable financial reporting framework. This change also emphasizes that the auditor’s evaluation of fair presentation extends beyond a technical compliance exercise and requires professional judgment.

Finally, it would also accelerate the deadline to assemble a complete and final set of audit documentation for retention from 45 days to 14 days. As we all know, memories fade, and likely so does the quality of documents assembled too long after the work is done.

I’m proud to support the approval of these updates to the core responsibilities of auditors.

I’d like to thank members of the SEC staff for their work on this proposal, including:

• Paul Munter, Natasha Guinan, Anita Doutt, Shaz Niazi, Greg Hillson, Mark Jacoby, Mai-Khoi Nguyen-Thanh, Fariba Nasary, Keith Hooper, Taylor Pross, Jeanne Riggs, and Dana Cretu in the Office of the Chief Accountant.
• Megan Barbero, Bryant Morris, Peggy Kim, Eduardo Aleman, and Hillary Holman in the Office of the General Counsel.
• Jessica Wachter, Lauren Moore, Oliver Richard, Charles Woodworth, Lyndon Orton, Tara Bhandari, Olga Itenberg, Vladimir Ivanov, Mahdi Mohseni, Rebecca Orban, Albert Sheen, and Mengxin Zhao in the Division of Economic and Risk Analysis.
• Ryan Wolfe and Charles Wright in the Division of Enforcement.
• Jenson Wayne, Michael Republicano, Nicolina McCarthy, and Meghan Ryan in the Division of Investment Management.
• Sarah Lowe and Stephanie Sullivan in the Division of Corporation Finance.
• Emily Russell, John Fahey, and Tim Fox in the Division of Trading and Markets.
• Vanessa Countryman, Matthew DeLesDernier, Kesha Hardin, Barbara Volpe, and Crystal Wilson in the Office of the Secretary