Auditor Independence Peter Mills

b) potential effect on audit quality

c) work effort and costs for audit committees, the companies and audit firms

The primary focus by the Working Group was on:

• Enhancing audit quality
• Reporting issuers

Reviewed background and potential benefits in each case before arriving at a consensus view

A Continuum of Alternatives

• Alternatives to attempt to address institutional familiarity threats (long tenure of audit firms) were looked at in a continuum
• Continuum includes:
• Mandatory audit firm rotation
• Mandatory tendering
• Mandatory comprehensive audit firm review by audit committees

A Continuum of Alternatives

• Considered the effect on the following factors when evaluating the continuum:
• Independence
• Transparency
• Audit quality
• Governance impact
• Work effort/cost

A Continuum of Alternatives

• Consensus – Mandatory Comprehensive Review of the Auditor (5 year basis)
• Audit committee led
• Greatest focus on audit quality and demonstrated exercise of professional skepticism
• Greatest degree of public disclosure about the basis on which the audit committee evaluates, retains or replaces an auditor
• Annual auditor assessments will continue
• Audit Committee Working Group to provide details around the process
• Considerate of proportionality and scalability for reporting issuers
• Provide most of the benefits with fewer of the issues and less cost

Mandatory Comprehensive Review of the Auditor

• The Working Group’s recommendation included:
• Consideration of what should be done in the annual compared to the comprehensive review
• Generating appropriate criteria, tools and guidance to assist the audit committees in completing the review
• Consideration of the scope of reporting issuers subject to the regime, as well as scalability
• Information from Regulatory inspection findings (which is currently not made public)