SEC Chief Accountant Calls for Stronger Commitment to Professional Skepticism and Audit Quality

On February 5, 2024, SEC Chief Accountant Paul Munter released a statement urging auditors to exercise professional skepticism and reminding auditors that their fundamental duty is to protect investors, not the client’s management.  Noting increasing inspection deficiencies in each of the last three years, Munter urged auditors to: (1) frequently and proactively engage with the audit committee including discussion of events that impact financial reporting and related issues; (2) engage and effectively integrate specialists and other experts into the engagement team to assist in auditing complex areas or where specialized knowledge is needed; (3) ensure that engagement teams are appropriately trained on biases that can affect auditor judgment and decision-making, and that might undermine professional skepticism; and (4) ensure that audit staff are empowered to exercise their professional skepticism and challenge the judgments of management.

Munter also emphasized the importance of the audit committees’ role in prioritizing and promoting quality audits.  Specifically, Munter reminded audit committees of the importance of a strong professional relationship with the auditor, independent of management.  Munter encouraged audit committees to: (1) meet with the auditor, independent of management, through formal or informal meetings; (2) have an open dialogue that provides adequate time for in-depth discussions of financial reporting and internal control matters with the independent auditor; (3) dedicate time to asking the auditor probing questions to assess audit quality; (4) speak directly with the audit engagement team about the importance of professional skepticism and the audit committee’s support of the engagement team; and (5) avoid substituting management’s judgments or interactions with the independent auditor for the audit committee’s own judgments and engagement with the independent auditor.

A copy of Munter’s statement can be found here.