{"text":[[{"start":7.25,"text":"The US audit regulator is “reclaiming the voice of the profession”, according to its new chair. That makes some investors nervous."}],[{"start":13.55,"text":"The Public Company Accounting Oversight Board has historically been chaired by lawyers or career regulators. Congress designed it so that auditors were in a minority on the five-person board to ensure independence from a profession blamed for the Enron scandal and other accounting failures."}],[{"start":30.1,"text":"The appointment of Jim Logothetis in January therefore signalled a sharp change from the Biden-era PCAOB, which took accounting firms to task for a spike in the number of flaws its inspectors found in audit work."}],[{"start":43.1,"text":"Logothetis spent 40 years at EY, auditing companies such as Whirlpool and Coca-Cola. “I understand the pressures, the judgment calls, the complexity, and the stakes” involved in an audit, he told an audience at the University of Southern California in June. He says the PCAOB must keep pace with changes in the profession to maintain investor confidence."}],[{"start":66.1,"text":"EY veterans now hold unprecedented sway over audit regulation. Kurt Hohl, a former EY partner, is the Securities and Exchange Commission’s chief accountant, a role that includes oversight of the PCAOB. Logothetis also hired another former EY executive as his chief of staff. After that news, one FT reader joked that the organisation should be renamed the PCEYB."}],[{"start":91.05,"text":"The new approach is very much to the big accounting firms’ liking. The PCAOB is revising new rules governing quality control systems to tweak some of the provisions firms were most strongly opposed to. Under planned changes, they will no longer be required to set up a board that includes external members to oversee quality control. The Biden-era PCAOB viewed such a body as an important check on executives, but the firms argued it would cost more in salaries, infrastructure and liability insurance than it was worth."}],[{"start":122.35,"text":"Next up is a revision of the PCAOB’s inspections regime, which will relieve pressure on individual auditors by focusing less on specific engagements and more on firm-wide quality control systems."}],[{"start":133.6,"text":"Shareholders rarely speak with one voice on matters of regulation, but several groups representing investors worry these changes could ease the pressure for self-improvement that has driven audit quality higher in the 24 years since the PCAOB was established. The risk of spot checks encourages auditors to make sure they dot every i and cross every t, even though firms often complain the organisation lumps minor paperwork mistakes together with more significant failures."}],[{"start":162.25,"text":"“Assessing a firm’s system of quality management is important, but it is, at best, a test of design,” Sandy Peters of the CFA Institute wrote in a letter to the FT in April, when the UK audit regulator said it was moving in a similar direction."}],[{"start":175.8,"text":"Perhaps the biggest potential drawback relates to transparency. The PCAOB is limited by Congress on what it can publish regarding an audit firm’s quality control system. This partly reflects the sensitivity. The Big Four — EY, KPMG, Deloitte and PwC — audit the overwhelming majority of large public companies so anything that calls into question their ability to carry out those audits effectively ought to be a big deal for investor confidence."}],[{"start":204.05,"text":"Firms are given a year to fix any system-wide problems identified by the PCAOB, which are only publicised if they fail to do so in that time. That creates a powerful incentive for compliance, but it also means potentially all of the PCAOB’s findings of firm-wide quality-control failures will remain secret. In this case, not only would investors miss out on information that might allow them to compare firms, there would also be a much narrower window on the work of the PCAOB itself, which might contain clues about how harsh or lenient its inspection regime has become."}],[{"start":241.15,"text":"Logothetis has promised more transparency in other areas of PCAOB work, including soliciting more external input before deciding its strategic priorities and standard-setting agenda."}],[{"start":251.75,"text":"There could also be advantages to shifting more enforcement work to the SEC, another change under consideration. The SEC can publicise cases as soon as it brings them, whereas the PCAOB has to keep them secret until they are resolved, meaning it can be years before investors see serious accusations against an audit firm."}],[{"start":272,"text":"Inspections of accounting firms are at the core of the PCAOB’s work, however, and the source of its unique influence in US capital markets. Investors will be keeping a close watch on how they evolve under the organisation’s new management. To the extent they can."}],[{"start":292.5,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1783324768_1209.mp3"}