Bill Overview
Title: To require auditor independence standards of the Public Company Accounting Oversight Board and the Securities and Exchange Commission applicable to past audits of a company occurring before it was a public company to treat an auditor as independent if the auditor meets established professional standards, and for other purposes.
Description: This bill modifies the auditor independence standards required by the Public Company Accounting Oversight Board and the Securities and Exchange Commission. Specifically, an issuer that is a public company or has filed to become a public company must comply with certain auditor independence standards regarding audits that occurred in the fiscal year prior to the company going public.
Sponsors: Rep. McHenry, Patrick T. [R-NC-10]
Target Audience
Population: People associated with companies affected by changes in auditor independence standards
Estimated Size: 3000000
- The bill concerns auditor independence, specifically related to standards that apply before a company goes public.
- The primary parties impacted are public companies or companies planning to go public.
- Auditors of these companies are also directly impacted, as the bill changes the standards they need to comply with.
- Investors in these companies may be indirectly impacted as changes in auditor independence can affect the reliability of financial statements.
- Globally, there are thousands of public companies and private companies planning to go public, all of which will need to comply with new regulations.
Reasoning
- This policy primarily impacts public companies, those filing to become public companies, and the auditors who work with them.
- Individuals who are directly involved with these companies, such as auditors, accountants, executives, and investors, are most likely to perceive a significant impact.
- The general public is less likely to be directly affected unless they are investors or stakeholders in these companies.
- With a budget of $5,000,000 for the first year and $16,000,000 over ten years, the policy will likely focus on implementing the necessary audit standard changes and monitoring compliance.
- Considering that there are approximately 4,000 publicly traded companies and numerous auditors in the U.S., individuals most affected will likely be those working in or with these entities.
Simulated Interviews
Senior Auditor (New York, NY)
Age: 42 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 7/20
Statement of Opinion:
- This policy will require us to rethink some of our auditing processes, which might be a bit challenging initially.
- We will have to train extensively and adapt our techniques to comply with new standards.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 9 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Tech Startup CFO (San Francisco, CA)
Age: 34 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 7.0 years
Commonness: 4/20
Statement of Opinion:
- It seems like an additional layer of compliance we'll need to be prepared for, but overall it should bring more transparency.
- We'll need to work closely with our auditors to understand the new standards.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 7 |
| Year 20 | 9 | 7 |
Investment Fund Manager (Chicago, IL)
Age: 58 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 2.0 years
Commonness: 5/20
Statement of Opinion:
- Stricter auditor independence is generally positive for investors, ensuring the objectivity of financials.
- The immediate impact isn't large for us, but it gives some peace of mind for our investments.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Junior Accountant (Dallas, TX)
Age: 27 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 8/20
Statement of Opinion:
- This change will provide me with an opportunity to learn more about public accounting standards.
- I'm looking forward to gaining more expertise, although it might mean additional workload initially.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Corporate Lawyer (Boston, MA)
Age: 45 | Gender: male
Wellbeing Before Policy: 9
Duration of Impact: 3.0 years
Commonness: 3/20
Statement of Opinion:
- This policy might increase our workload but also the importance of our advisory role in guiding companies to compliance.
- A change in standards means updates in legal implications which we will need to educate our clients about.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 9 | 9 |
| Year 10 | 9 | 9 |
| Year 20 | 9 | 9 |
CEO of a mid-sized fintech company (Atlanta, GA)
Age: 31 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 7.0 years
Commonness: 4/20
Statement of Opinion:
- This might add some complexity to our plans of going public, but I believe it's necessary for transparency.
- We'll need to make sure our books are in perfect order to meet the auditor independence standards.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 9 | 7 |
| Year 20 | 9 | 7 |
Partner at a Big 4 Accounting Firm (Seattle, WA)
Age: 39 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 6/20
Statement of Opinion:
- Audit independence is critical, and refining these standards is a positive step towards increased financial statement reliability.
- It will mean initial adjustments, but overall beneficial for the industry.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Private Investor (Los Angeles, CA)
Age: 50 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 2.0 years
Commonness: 5/20
Statement of Opinion:
- Better auditor independence can only be good for the markets and my investment strategy.
- It provides me with more confidence in the financial information I use to make investment decisions.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 9 | 9 |
| Year 10 | 9 | 9 |
| Year 20 | 9 | 9 |
Financial Analyst (Phoenix, AZ)
Age: 29 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 6/20
Statement of Opinion:
- Ensuring auditor independence helps us have a clearer and more truthful view of a company's financial status.
- I'm optimistic that this will lead to better investment decisions for me and my clients.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 8 | 7 |
Chief Compliance Officer (Houston, TX)
Age: 48 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 4/20
Statement of Opinion:
- This policy change means more work initially, but aligns with our goal of maintaining transparency and integrity.
- In the long run, it could enhance trust with stakeholders.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Cost Estimates
Year 1: $5000000 (Low: $4000000, High: $6000000)
Year 2: $3000000 (Low: $2000000, High: $4000000)
Year 3: $2000000 (Low: $1000000, High: $3000000)
Year 5: $1000000 (Low: $500000, High: $1500000)
Year 10: $500000 (Low: $250000, High: $750000)
Year 100: $50000 (Low: $25000, High: $75000)
Key Considerations
- The CBO estimates are focused on administrative costs and regulatory compliance, not on market responses.
- This kind of regulation might offer the benefit of improved financial scrutiny without significant additional taxpayer burden.
- Potential training costs for existing auditors on the new standards are embedded in oversight costs, but direct expenses for accounting firms are not considered.
- Differences in impact on publicly traded versus privately held companies preparing to go public.