Chief accountant asks audit committees to increase supervision of audit firm independence

SEC Chief Accountant Wesley Bricker said he wants audit committees to increase their monitoring of the services auditors provide to clients that may compromise the auditor’s independence.

Bricker said in a speech at Baruch College’s Annual Financial Reporting Conference on May 4, 2017, that his staff was recently asked whether accounting firms can bid for non-audit services prohibited by the Sarbanes-Oxley Act of 2002 when they are about to end a contract with an audit client.

“It is the staff's view that, depending on facts and circumstances, this activity could potentially impair an auditor's independence under the general standard in Rule 2-01(b) of Regulation S-X,” Bricker said. “The proposal activity while the firm is still the auditor could adversely impact the auditor's ability to maintain professional skepticism while conducting the audit.”

Bricker expanded on his comments somewhat during a press briefing and said that he believes the rules are clear that an auditor should not bid to provide prohibited services with a client even though they are about to be replaced with another firm.

“I encourage audit committees to engage with the auditor to understand the impact of any proposal activities for non-audit services on the auditor's independence and audit quality,” Bricker said.

Section 201 of Sarbanes-Oxley lists the services auditors are barred from providing to audit clients, including bookkeeping, financial reporting and the design and implementation of a financial reporting system. The prohibitions were added to the landmark reform law because accounting firms were making more money providing client with non-audit services than they were on their audit services, and investor advocates and regulators had grown concerned that the emphasis on non-audit services was undermining auditors’ independence and the quality of the work they were doing. The law created the PCAOB in large part to enforce the rules on auditor independence.

In recent years, as audit firms have revived their consulting practices, some concerns have resurfaced that the trend may again be undermining audit quality.

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