Through a handful of aggressive initiatives meant to reinvigorate public company auditing, American's top auditing regulator is looking for a way to make the audit more relevant and more effective while still enabling auditors to earn a living.

The audit is still essential to protect investors, but auditors don't work directly for investors, noted James Doty, chairman of the Public Company Accounting Oversight Board in a speech to the National Association of State Boards of Accountancy. Sarbanes-Oxley measures to insert the audit committee between management and auditors have helped auditors to become more skeptical of management assertions, but there's still plenty of evidence in PCAOB inspections that auditors still view themselves as providing a client service to management, he says.

“Numerous audits by major firms and small firms alike exhibit flaws that go to the fundamental objective of the audit,” said Doty. Sometimes auditors rely too heavily on management assertions and fall short of gathering their own evidence to support an audit opinion. In other cases, auditors rationalize away evidence that should get a closer look. It leaves him wondering why auditors set aside their skepticism so easily. “I am led back to the fee, and the effect that client service has on an auditor's ability to retain the fee from year to year,” he said.

The PCAOB has opened a debate on whether audit firms should be subject to term limits or other measures to develop greater auditor independence and improve skepticism. The board also is considering some sweeping changes to the audit report intended to extract more information out of auditors that could be useful to investors, and it wants to see more information in audit reports about who is responsible for the audit conclusions.

Doty contends auditors who are more skeptical do a better job than auditors who are less skeptical. Regulators need to inspire that skepticism – and fast – before investors give up on auditors entirely, threatening the ultimate benefits of having the audit performed. “The challenge is maintaining a business model that relies on client service for the success of the (audit) firm while at the same time managing the legal risk that one of those clients will succumb to the incentives inherent in its business model,” he said.

Not intending to indict all auditors, Doty said skepticism can fail even where ethics, integrity, and good faith are in place. “I am talking about casualties of judgment in the heat of the moment,” he said. “As standard setters, the PCAOB and the state boards should try to find ways to counter the pressures and fortify the judgments.”