- Greater competition among audit firms will likely come about only as a result of government action, Lynn Turner, former chief accountant at the Securities and Exchange Commission (SEC), told an SEC advisory panel as the agency pushes forward with plans to shake up and strengthen oversight of the industry.
- “I don’t see that much is going to be done on competition unless there’s some fundamental changes made, or determined to be made, by the government,” Turner said last week during a panel discussion entitled “Competition and Regulatory Reform at the PCAOB [Public Company Accounting Oversight Board].”
- “In the area of competition, we’ve gone backwards,” Turner, a senior advisor at Hemming Morse, said during a webcast hosted by the SEC’s Investor Advisory Committee, calling the “Big Four” audit firms an “oligopoly.”
SEC Chair Gary Gensler, in June, ousted William Duhnke as chair of the PCAOB, underscoring his aim to put the board “on a path to better protect investors by ensuring that public company audits are informative, accurate and independent.”
Gensler appointed Duane DesParte, a PCAOB board member, as acting chair. Since then, the SEC has indicated it is seeking applicants for the board’s four other seats.
The PCAOB oversees the accounting firms that audit public companies and was established after the Enron accounting scandal under the Sarbanes-Oxley Act of 2002.
“I don’t think that the PCAOB was living up to its potential or mission,” Gensler said in a Wall Street Journal interview after removing Duhnke, adding he supports “taking a new direction and reinvigorating” the board. He said the PCAOB has fallen short in enforcement against accounting firms, setting audit standards and its contacts with investors.
Improvement in audit quality would require ensuring that auditors put investors first, Turner said.
“We’ve got to change the culture in the firms where they view the investors as the ultimate client, not the management team who’s paying them,” Turner told the SEC’s advisory committee. “Let’s give the investors more power and make the auditor beholden to the investor.”
“We’ve got to go to more of a market-based, investor-driven process if we’re going to get this fixed,” he said. “Otherwise, I think we’ll continue to flop around like a fish on the beach, and just not make any real progress.”
Wes Bricker, vice chair of PwC U.S. and a former SEC chief accountant, said during the panel discussion that auditors “must continue to challenge ourselves about how trust is earned and delivered.”
The industry needs to ask questions such as, “do we have a culture that embraces our public responsibility, are we communicating enough about emerging risks and where else could assurance benefit investors and the public?” he said.