Is Ernst & Young audit quality panel just window dressing? – The Wall Street Journal

DUBLIN – The Big Four accounting firms are aware that they have an image problem. After a multi-year string of audit scandals and a series of announcements of plans for more scrutiny from regulators, the message seems to be sinking in. In a bid to be proactive about things, Ernst & Young has announced the creation of an "independent" audit quality panel made up of… people EY regularly does business with, including providing auditing services. Since one of the chief complaints that regulators have raised is that it's hard for audit firms – which rely on companies for their revenues – to take a hard line with their clients, it's not entirely clear how a panel of clients is going to crack the whip on audit standards. After all, unscrupulous managers and bonus-seeking executives have every incentive to keep audit quality poor, the better to hide their malfeasance. Add to that the fact that the panel will be selected and paid by EY and the whole "independence" claim looks a little dicey. The best one can say about it is that it probably won't hurt – any moves to improve the rigour and quality of auditing are welcome. But a substitute for improved regulation and genuine, external, independent oversight this ain't. – Felicity Duncan.Ernst & Young to Form Independent Panel to Help Improve Audits.By Michael Rapoport.Ernst & Young LLP is creating an independent panel to advise it on how to improve its audits, a nod toward outside oversight as audit quality at the Big Four accounting firms continues to be a major issue..___STEADY_PAYWALL___.The three-member panel, which EY's U.S. partnership announced Wednesday, is intended to provide the firm with an outside perspective on aspects of its operations, culture or strategy that relate to audit quality. The panel will be made up of experts drawn from the groups EY deals with regularly and who rely on its audit work, such as investors, corporate audit clients and regulators..Accounting-industry experts have long said the Big Four accounting firms would benefit from more independent input on how they operate. In the past, the U.S. Big Four firms have typically had boards made up entirely of their own partners, though that has started to change in recent years.."It is helpful to have the perspective of these experts," Kelly Grier, EY's U.S. chairman and managing partner, said in an interview. The independent audit-quality committee is an advisory body as opposed to a monitor of the firm's activities, but "they will set their own agenda," Ms. Grier said. "They will have unfettered access to all aspects of the firm.".The new committee will be chaired by F. William McNabb III, a former chief executive and chairman of Vanguard Group. The other members will be Jeanette Franzel, a former member of the Public Company Accounting Oversight Board, the U.S. audit industry's regulator, and Charles Noski, a former chief financial officer at Bank of America Corp., Northrop Grumman Corp. and AT&T Inc. The panel will be separate from the EY executive committee that runs the U.S. firm. EY's move is akin to those of PricewaterhouseCoopers LLP and KPMG LLP, both of which have named outside directors to their boards within the past two years. Ms. Grier said EY itself has had independent directors on the global level since 2011.."It's a perspective we've found really valuable," she said..Write to Michael Rapoport at Michael.Rapoport@wsj.com

Is Ernst & Young audit quality panel just window dressing? – The Wall Street Journal

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