The Public Company Accounting Oversight Board will reveal its ideas next Tuesday for how audit firms should start identifying engagement partners and outside auditors by name in their audit reports.

The board has set a Tuesday morning meeting to issue proposed amendments to its existing auditing standards intended to produce a little more transparency about exactly who did the work that goes into each public company audit. The amendments would require audit firms to identify engagement partners by name as well as any accounting firms or other outside participants who contributed to the audit. Currently, audit firms provide nothing but their own firm name on audit reports.

The PCAOB published a concept release in 2009 looking for views on whether to require the engagement partner to sign the audit report, much the way key management must sign the financial statements under Sarbanes-Oxley. Investors generally liked the idea of requiring the engagement partner's signature, believing it would increase their sense of accountability and therefore increase audit quality.

Auditors, on the other hand, generally protested that engagement partners already worked under enough requirements that established their sense of personal responsibility. They worried that the signature could be used against them unfairly and increase their exposure to legal liability.

The PCAOB has already put auditors on notice that they need to do a better job of supervising the work when they hire auditors from outside their own firms to work on an audit. The board published Staff Audit Practice Alert No.6 in mid-2010 to remind auditors of the standards they need to follow when they hire and rely on the work of outside auditors. The practice has become increasingly common in recent years as public companies have become more global, especially when companies have some or even most of their operations in China, the PCAOB noted.

A 2009 academic study revealed that audit firms were experimenting with offshoring certain parts of their audit work, raising numerous questions about how visible that audit work would be to management, investors, and even regulators. The PCAOB has struggled to inspect audit work performed outside the United States in certain countries, most notably China, where firms and government officials cite legal obstacles and sovereignty concerns as they refuse to submit to the inspection process.

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