Bob Lehman, partner and global REIT head at accounting and advising firm EY, joined REIT.com for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.
Lehman reviewed recent developments at the Public Company Accounting Oversight Board (PCAOB), the private sector body that oversees the auditors of U.S. public companies.
A topic of interest for the PCAOB, he said, has been audit effectiveness and auditor qualification. Lehman said it became apparent towards the end of last year that the PCAOB was not satisfied with much of the work being done by audit firms in the area of internal controls.
In October the PCAOB issued a standard that focused on improving internal controls, Lehman said. He noted that as a result, EY had to strengthen testing in that area: “It really was something that was difficult for all parties involved,” he said.
Meanwhile, as the PCAOB continues to review progress in this area, it is continuing to issue new regulations and proposals, Lehman said.
One such proposal relates to auditor opinions, Lehman noted. He explained that the PCAOB wants auditor opinions to be more descriptive and informative. “That could lead to the audit firms getting out in front of management, and they would be discussing things management should discuss. It seems that it’s backward, the cart before the horse,” Lehman said.
Another proposal concerns mandatory audit firm rotation, which would limit the number of consecutive years in which a registered public accounting firm could serve as the auditor of a public company.
“We understand why they think that would enhance auditor independence and transparency, but when you really dive into it, it will lead to having management distracted for whatever the mandatory period is on a constant basis,” Lehman said.
“Going into a mandatory rotation is really not going to help anyone. It’s just going to make management spend more time and money,” he added.