EY Felt the Need to Form an Independent Audit Quality Committee

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If someone had told you that a Big 4 firm just created an independent committee that will advise the firm on how to improve the quality of its audits, you’d think it was KPMG, right? I mean KPMG partners stole confidential inspection information from a couple of rogue PCAOB employees because the firm’s inspection reports sucked so bad: 34% deficiency rate in 2012, 46% in 2013, 54% in 2014, and 38% in 2015.

But it wasn’t KPMG. It was EY.

The firm announced on Jan. 23 that it has a new Independent Audit Quality Committee. While EY in the U.K. has been using behavioral psychologists to improve audit quality, EY in the U.S. has turned to a former Public Company Accounting Oversight Board member, the chairman of the Financial Accounting Foundation, and a former CEO of Vanguard Group Inc. to “advise senior leadership on the many aspects of the firm’s business, operations, culture, talent strategy, governance, and risk management that affect audit quality.”

EY U.S. Chairman Kelly Grier said:

“At EY, we believe in the power of diverse points of view in all aspects of our business. This includes harnessing the value of independent perspectives to further strengthen audit quality. We believe that gaining insight and advice from the IAQC will help us fulfill our important role of delivering high-quality audits that build confidence in the US and global capital markets.”

So, who are these three audit quality virtuosos? Let’s meet them:

Jeanette Franzel

Jeanette Franzel
Jeanette Franzel served as a member of the PCAOB from February 2012 until January 2018. She provided strategic oversight for all PCAOB mission programs to oversee the audits of public companies and brokers and dealers that file with the Securities and Exchange Commission.

Before joining the PCAOB, Franzel spent nearly 12 years at the U.S. Government Accountability Office, where she ended her tenure as managing director, overseeing all aspects of the GAO’s financial audits of the U.S. government. She also provided leadership for the GAO’s interdisciplinary teams, which performed a wide range of high-profile performance audits related to how well federal agencies met their objectives and missions. During and after the financial crisis, Franzel’s team provided oversight of the U.S. government’s efforts to stabilize the financial markets and promote economic recovery.

Charles Noski

Charles Noski
Charles Noski serves on the boards of directors and audit committees of Booking Holdings Inc. and Microsoft Corp., is chairman of the board of trustees of the Financial Accounting Foundation, and is a member of the AICPA and Financial Executives International.

He retired as vice chairman of Bank of America Corp. in 2012, after serving as the corporation’s executive vice president and CFO. He joined Bank of America in 2010, following the onset of the financial crisis.

Noski is a Green Dot alum, starting his professional career at Deloitte & Touche LLP in 1973, spending seven years as an audit partner prior to joining Hughes Electronics Corp. in 1990 and advancing from senior financial roles to president and COO.

He has also served as vice president and CFO and a director of Northrop Grumman Corp., a senior advisor at Blackstone Group LP, vice chairman of the board of directors and CFO of AT&T Corp., and executive vice president and CFO of United Technologies Corp.

F. William McNabb III

F. William McNabb III
Bill McNabb is the former chairman of the board of directors and board of trustees of Vanguard, a position he held from 2010 through 2018. He served as the company’s CEO and president from 2008 to 2017. During his 30-year career with Vanguard, he had the opportunity to lead each of Vanguard’s client-facing business divisions.

McNabb currently sits on the board of UnitedHealth Group. In addition, he is the chairman of the board of the Zoological Society of Philadelphia and serves on the Wharton Leadership Advisory Board and the Dartmouth Athletic Advisory Board. He is also a board member of CECP: The CEO Force for Good and a board member of the Philadelphia School Partnership. McNabb served as Chairman of the ICI from 2013-2016 and is the executive in residence of the Drexel University Raj & Kamla Gupta Governance Institute.

McNabb was appointed as the chairman of the IAQC.

Unlike KPMG’s most recent PCAOB inspection reports, EY’s have at least been getting better after being terrible for a few years: 48% deficiency rate in 2012, 50% in 2013, 36% in 2014, 29% in 2015, and 27% in 2016.

Will having an independent committee devoted to improving audit quality result in EY’s audit deficiency rates improving in future PCAOB inspection reports? Maybe, maybe not. But I’d feel better having Franzel, Noski, and McNabb in my corner than a bunch of behavioral psychologists.

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