New rules take failing auditors off the hook - Paul Gillis

Paul Gillis

The Public Company Accounting Oversight Board (PCAOB) will demand companies to identify senior partners of auditors who perform audits from January 31, 2017. But that means also that auditors responsible for hundreds of dodgy Chinese IPO´s in the US will never be identified, writes Beida accounting professor Paul Gillis on this weblog.

Paul Gillis:

The rule is effective for audits completed after January 31, 2017. That means it will not be possible to identify the engagement partner on the many notorious audit failures that have happened in recent years among US-listed Chinese companies, since the information will be prospective only. Nevertheless, this is a good step forward, and will help to protect investors in the future. 

The information is not required to be included in the company’s annual filings. Instead, the audit firm makes a separate filing with the PCAOB that will be available in a searchable database. I think companies should voluntarily disclose the name of their audit partner in their annual report to make this process easier for investors. 

While auditor rotation is not required in the US (it is required for state owned enterprises in China), the audit partner on US listed companies must be rotated every five years. Audit committees should carefully vet proposed audit partners and ask direct questions about prior engagements the partner has been associated with. I know some large US-listed Chinese companies have rejected proposed audit partners because they were associated with frauds in the past.

More at the ChinaAccountingBlog.

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