* Group's new plan: Partner name belongs in audit report
* Would be less burdensome than 2011 version
* Outside work performed on audit would also be disclosed
* Some board members have reservations about plan
By Sarah N. Lynch
WASHINGTON, Dec 4 The U.S. watchdog revived a
proposal on Wednesday that would require accounting firms to
disclose the names of individual partners who work on company
audits, more than three years after big accounting firms opposed
Under the Public Company Accounting Oversight Board's
(PCAOB) plan, partner names would have to be listed on audit
reports, which are easily accessed by investors.
As a result, investors could better understand the quality
of auditing at companies and hold auditors more accountable.
Accounting companies would also be required to disclose the
names of outside firms that helped on an audit - a provision
brought about by a rash of accounting problems at China-based
companies listed on U.S. markets.
Many of the audits of those companies were conducted by the
Chinese arms of major U.S audit firms, but U.S. regulators have
had limited success in gaining oversight over the work of the
The PCAOB's plan was initially proposed in October 2011, but
until now has remained largely dormant.
The Big Four audit firms, KPMG,
PricewaterhouseCoopers, Deloitte & Touche and
Ernst & Young, have opposed naming audit partners,
saying it would be of little use to investors, could increase
legal liability and deter auditors from tackling high-risk audit
Jim Doty, the chairman of the PCAOB, compared Wednesday's
plan to other regulations that hold chief executives accountable
by requiring them to certify their financial statements and
internal controls are sound.
"It holds the promise of improving audit quality by
sharpening the mind and reminding auditors of their
responsibility to the public," Doty said.
The proposal got fresh attention earlier this year after
veteran KPMG auditor Scott London pleaded guilty to charges he
passed confidential details about companies he audited to a
friend who made profitable trades on the tips.
The accountant admitted he gave jeweler Bryan Shaw inside
information regarding at least 14 earnings announcements or
acquisitions by KPMG clients, including Herbalife Ltd
and United Rentals Inc. Shaw also pleaded guilty in the
When KPMG initially disclosed it had parted ways with the
employee responsible and with two corporate audit clients,
London's identity was not disclosed.
Critics said if the PCAOB proposal had been in place, his
name would have been disclosed much sooner.
Such information, they said, would have been helpful for
shareholders of other companies whose books London audited.
The PCAOB's Doty said he realizes the industry has long
opposed disclosing the name of the audit partner, but remains
hopeful it will shift its views.
"With the experience of ... Scott London and the public
dismay at Scott London, I have some hope that the industry and
the firms will take a fresh look at this and say, this is not so
bad," he told reporters on the sidelines of Wednesday's public
The plan unveiled on Wednesday represents a scaled-back
version of the 2011 plan.
That would have required audit firms to name the partner in
audit reports, as well as in annual report forms filed with the
The new draft still calls for the audit engagement partner
to be named, but removes the requirement to name the individual
in the annual report form.
The new proposal also eased a transparency measure designed
to address cases in which an accounting firm does not perform
100 percent of the work on an audit.
Audit firms will be required to disclose the names of
outside firms, such as units based in other countries, if they
contribute more than 5 percent of the total hours dedicated to
Originally, the PCAOB had set a lower disclosure threshold
of 3 percent. It had also sought to require firms to identify
people by name who worked on the audit outside of the accounting
Although the latest version dropped a few controversial
requirements, some PCAOB board members expressed reservations,
including Jay Hanson and Jeanette Franzel.
"I cannot say today that I would support the ultimate
adoption of the reproposal as currently drafted," Hanson said,
adding that he was concerned the requirement to include the
disclosures in the audit report could create "substantial
uncertainties and potentially unnecessary risks."
Franzel said she was unconvinced the plan is necessary and
suggested more analysis.
"I'm starting to think that naming the audit engagement
partner in the auditor's report is a solution in search of a
problem," she said.
Doty said he hopes the PCAOB can complete its work by next
spring, though he admitted the timeline may be a bit optimistic.
VOTE ON BROKER AUDITS
The PCAOB also put the final touches on rules governing the
audits of securities broker-dealers.
Prior to the 2010 Dodd-Frank Wall Street reform law, the
PCAOB only had authority to inspect and write standards for
auditors of public companies.
Congress expanded its authority to include auditors of
broker-dealers in the wake of the scandal caused by Bernard
Madoff's $65 billion Ponzi scheme.
Madoff managed to dupe investors for many years in part
because of his auditor, David Friehling of Friehling & Horowitz,
who pleaded guilty in 2009 to fraud charges. Friehling claimed
he did not know Madoff was running a Ponzi scheme.
Wednesday's final rules expand some of the current
requirements for public company auditors to include