| NEW YORK/WASHINGTON
NEW YORK/WASHINGTON In a bid to lift some of the secrecy around U.S. audit firms, a watchdog board on Wednesday told corporate directors that they may seek out non-public information about auditor inspections.
U.S. law bars regulators from making public key parts of reports on inspections of audit firms. But the law does not prevent audit committees of corporate boards from seeking the reports from auditors, the Public Company Accounting Oversight Board said on Wednesday.
"This is about empowering audit committees," PCAOB Chairman James Doty said on a conference call with reporters.
The inspection reports are the "only place where they (audit committees) can find independent evaluations of their auditors," he said.
Concerns about audit committees' access to information came up at a PCAOB hearing in March on audit firm rotation, an idea being considered to improve auditor independence. Rotation is part of an aggressive agenda taken on by Doty since he was named chairman in January 2011.
"We're aware that there's a range of practice with audit committees," Doty said on Wednesday. "That ranges from a high level of transparency and effectiveness to areas where we know it's not so effective."
Audit committees have become a key part of the U.S. system of investor protection since 2002's Sarbanes-Oxley Act, approved after accounting scandals at Enron and WorldCom.
To make audit committees better financial watchdogs, the act gave them the power to hire, fire and oversee auditors and beefed up qualifications for serving on an audit committee.
In a statement on its website, the PCAOB laid out a blueprint of questions that audit committees can ask their auditors and explained their right to ask them for inspection reports.
Created by Sarbanes-Oxley, the PCAOB has been inspecting audit firms since 2003, replacing a system of peer reviews that had auditors checking each others' work.
Parts of the inspection reports are published on the PCAOB's website, but assessments of the audit firms' overall quality controls - often the most crucial part of the reports - by law cannot be made public if the firm fixes problems within a year.
Some audit committee members have said auditors decline to discuss PCAOB inspection results or downplay adverse findings, the PCAOB said in its statement.
"Report findings are serious matters," Doty said on the conference call, disputing some auditors' claims that criticisms just reflect differences in opinion or matters of documentation.
Most of the PCAOB's reports on auditors' quality control systems remained sealed because auditors remedy problems within the 12-month time limit.
In an unusual exception, the PCAOB last October released the quality control assessment on Deloitte & Touche, taking aim at its training and supervision, as well as auditors' evaluations of management estimates. It was the first time that the quality control portion of an inspection report had been released on a Big Four accounting firm.
Deloitte said at the time that it was making investments to improve its audit practice.
(Reporting by Dena Aubin and Patrick Temple-West; Editing by Kevin Drawbaugh and Tim Dobbyn)