MS05/10 Comments Received in Response to Consultation Reports on Issues Pertaining to the Audit of Publicly Listed Companies - Comment Letters

Comments Received in response to Consultation Reports on Issues Pertaining to the Audit of Publicly Listed Companies Comment Letters TECHNICAL COMMITTEE OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS MS05/10 MONTH 2010 2 CONTENTS Chapter Page Introduction 3 1 Auditor Communications 4 2 Transparency of Firms that Audit Public Companies 12 3 Exploration of Non-Professional Ownership Structures for Audit Firms 16 Appendix A – Comment Letters received regarding Auditor Communications 19 Appendix B – Comment Letters received regarding Transparency of Firms that Audit Public Companies 20 Appendix C – Comment Letters received regarding Non-Professional Ownership Structures for Audit Firms 22 3 Introduction IOSCO, as the worldwide association of securities regulators dedicated to enhancing investor protection and promoting investor confidence in the integrity of the securities markets, has long had an interest in the quality of audits of the financial statements of publicly listed companies. Audited financial statements are intended to increase the confidence of investors that they are receiving accurate and complete information on the financial performance of listed companies and high quality audits are therefore an important contributor to investor confidence in the capital markets. Background In May 2007, the IOSCO Technical Committee, in cooperation with the Autorite des Marches Financiers in France, sponsored a Roundtable on Audit Quality. Participants from the public and private sectors representing a wide range of stakeholders in the capital markets were invited to participate. In a series of panels, speakers presented remarks and supplied papers on numerous subjects relating to the quality of public company audits and the value of audits in the markets. The transcript of this Roundtable is available on the IOSCO public website at www.iosco.org. In mid-2008, the IOSCO Technical Committee decided to pursue three areas of inquiry selected from the subjects that had been raised in the Audit Quality Roundtable. These three areas concerned communications that auditors make to the public and to others about findings in the audits they conduct of the financial statements of publicly listed companies (auditor communications); communications that audit firms make to the public and to others about their own internal firm structure, governance, audit quality control and operations (auditor transparency); and whether any changes should be made in the prevailing form of private professional partner ownership of audit firms in the interest of promoting audit quality and increasing the choices of audit firms for public companies (auditor ownership). Each of these three areas of inquiry was the subject of a Consultation Report issued by the IOSCO Technical Committee for public comment in late 2009. The comment period for the Consultation Reports closed on 15 January 2010; however, the Consultation Reports continue to be available on the IOSCO website at http://www.iosco.org/library/index.cfm?section=pubdocs. Next Steps During 2010, the Technical Committee’s Standing Committee 1 (TCSC1) has been reviewing and considering the views of parties submitting comments in response to the Consultation Reports. As part of this work, TCSC1 prepared this Summary to accompany its release of the comment letters so that others with an interest in these subjects may more easily benefit on a timely basis from the views and information provided. Readers of the Summary will note a considerable diversity of views among the responses, both within stakeholder groups and across stakeholder groups. Further, relatively few responses were received from investors. As further described herein, TCSC1 is currently undertaking additional outreach activities on the subjects of auditor communications and auditor transparency. TCSC1 is not planning more investigative or analysis work on auditor ownership. 4 Chapter 1 Auditor Communications The Technical Committee of the International Organization of Securities Commissions (IOSCO) Consultation Report on Auditor Communications was issued on 9 September 2009. Over the course of the following months ending in January 2010, twenty-two comment letters were received. Sixteen of the comment letters were from accounting and auditing professional firms and organizations, including an international audit standard setter; three were from auditor oversight bodies and securities regulators; and three were from investor/user/corporate investment organizations. Highlights of the comments received are included