SEC’s Chief Accountant Urges Audit Committees to Focus on Quality over Cost
The SEC’s Chief Accountant, Paul Beswick, encouraged audit committees to focus on quality rather than cost when selecting auditors. Mr. Beswick said: “I worry that audit committees may be focusing too much on the amount of the fee and not focusing enough on the expected audit quality.” He continued: “The message here is that the “bottom line” should not drive the decision to retain and or hire an auditor.” Moreover, he said that a subsequent audit failure would “raise questions about the diligence of the members of the audit committee.” Mr. Beswick acknowledged the difficulties that audit committee members encounter when trying to assess quality. He noted that the PCAOB has undertaken a project to identify audit quality indicators.
OUR TAKE: We agree. It is irresponsible to consider fees without considering quality. In fact, this same analysis should apply to all the professionals that firms and funds retain: lawyers, administrators, and compliance providers. Many directors make the mistake of assuming that professional services are a commodity just because they don’t have the tools to distinguish the services. In fact, professional services are the opposite of a commodity because they are made up of distinct groups of people with their own methods and approaches.