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NOTICE: This Is an Unofficial Transcript of the Public Company Accounting NOTICE: This is an unofficial transcript of the Public Company Accounting Oversight Board’s June 28, 2012 Public Meeting on Auditor Independence and Audit Firm Rotation. The Public Company Accounting Oversight Board does not certify the accuracy of this unofficial transcript, which may contain typographical or other errors or omissions. An archive of the webcast of the meeting can be found on the Public Company Accounting Oversight Board’s website at: http://pcaobus.org/News/Webcasts/Pages/06282012_PublicMeeting.aspx 1 PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD + + + + + AUDITOR INDEPENDENCE AND AUDIT FIRM ROTATION PCAOB RULEMAKING DOCKET MATTER NO. 37 + + + + + PUBLIC MEETING + + + + + THURSDAY JUNE 28, 2012 + + + + + The Public Meeting convened at the Hilton San Francisco Financial District, 750 Kearny Street, San Francisco, California, at 8:00 a.m., Jim Doty, PCAOB Chairman, presiding. THE BOARD JAMES R. DOTY, Chairman LEWIS H. FERGUSON, Board Member JEANETTE M. FRANZEL, Board Member JAY D. HANSON, Board Member STEVEN B. HARRIS, Board Member PCAOB STAFF MARTIN F. BAUMANN, PCAOB, Chief Auditor and Director of Professional Standards MICHAEL GURBUTT, Associate Chief Auditor J. GORDON SEYMOUR, General Counsel JACOB LESSER, Associate General Counsel OBSERVERS BRIAN CROTEAU, Securities and Exchange Commission NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 2 PANELISTS JULIE ALLECTA, Trustee and Chairman of the Audit Committee, Forward Funds JANICE HESTER AMEY, Portfolio Manager, Corporate Governance, California State Teachers' Retirement System (CalSTRS) ANDREW D. BAILEY, JR., Professor Emeritus, University of Illinois at Urbana-Champaign; former Deputy Chief Accountant, US Securities and Exchange Commission WILLIAM H. BARIBAULT, Trustee and Independent Director, American Funds; Chairman, Oakwood Enterprises, Inc. JAMES D. COX, Brainerd Currie Professor of Law, Duke University WILLIAM D. CVENGROS, Trustee and Independent Director, Janus Funds CHARLES R. DROTT, Independent Consultant ROGER DUNBAR, Chairman of the Board and Audit Committee, Silicon Valley Bank DAVID K. EATON, Vice President of Proxy Research, Glass, Lewis & Co., LLC DAVID FOLLETT, Chief Practice Officer, Moss Adams LLP THOMAS E. GARD, Partner-In-Charge, Audit, Armanino McKenna LLP C. BRIAN FOX, Founder, Confirmation.com DAVID GERALD, Founder, President and Chief Executive Officer, Securities Investors Association Singapore KENNETH A. GOLDMAN, Senior Vice President and Chief Financial Officer, Fortinet, Inc. CONRAD HEWITT, Director, Bank of the West; former Chief Accountant, US Securities Exchange Commission BONNIE HILL, Co-Founder, Icon Blue, Inc.; President, B. Hill Enterprises LLC; Director, The Home Depot, Inc., Yum! Brands, Inc, AK Steel Corporation and California Water Services Group ERIC KELLER, Chief Operating Officer, Kleiner Perkins Caufield & Byers KOICHIRO KURAMOCHI, Deputy Chief Accountant, Corporate Accounting and Disclosure Division, Financial Services Agency - Japan MIKE KWATINETZ, General Partner, Azure Capital Partners RICHARD D. LEVY, Executive Vice President and Controller, Wells Fargo & Company NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 3 CHRISTOPHER LYNCH, Chairman of the Audit Committee, AIG; Audit Committee Member, Freddie Mac ROBIN MADSEN, Chif Financial Officer, California State Teachers’ Retirement System (CalSTRS) MICHAEL P. MAHER, Chief Financial Officer, US Venture Partners; Founding Member, National Venture Capital Association CFO Task Force KEVIN McBRIDE, External Reporting and Treasury Accounting Controller, Intel Corporation MAUREEN McNICHOLS, Marriner S. Eccles Professor of Public and Private Management and Professor of Accounting, Graduate School of Business, Stanford University; Affiliated Faculty, Rock Center for Corporate Governance PAUL REGAN, Chairman, Hemming Morse, LLP STEVEN W. THOMAS, Partner, Thomas, Alexander, Forrester LLP GILBERT R., VASQUEZ, Managing Partner, Vasquez & Company LLP STEVEN M. WEST, Chairman of the Audit Committee, Cisco Systems, Inc. THE HONORABLE HAROLD M. WILLIAMS, former Chairman, US Securities and Exchange Commission NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 4 CONTENTS Welcome and Opening Remarks Chairman Jim Doty .............. 6 Member Lou Ferguson .............. 9 Member Jay Hanson ............... 9 Member Steve Harris ............. 11 Member Jeanette Franzel ........... 12 Session One The Honorable Harold M. Williams ...... 15 Session Two Andrew D. Bailey, Jr. ............ 38 James D. Cox ................ 45 Maureen McNichols .............. 53 Session Three Charles R. Drott .............. 93 C. Brian Fox ................ 98 Steven W. Thomas .............. 105 Session Four Conrad Hewitt ................ 133 Bonnie Hill ................. 141 Christopher Lynch .............. 149 Steven M. West ............... 156 Session Five Roger Dunbar ................ 182 Eric Keller ................. 187 Mike Kwatinetz ............... 193 Michael P. Maher .............. 200 LUNCH BREAK Session Six David K. Eaton ............... 236 Janice Hester Amey ............. 240 Robin Madsen ................ 241 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 5 CONTENTS (CONT'D.) Session Seven Julie Allecta ................ 269 William H. Baribault ............ 277 William D. Cvengros ............. 281 Session Eight Kenneth A. Goldman ............. 314 Richard D. Levy ............... 324 Kevin McBride ................ 331 Session Nine David Gerald ................ 368 Kiochiro Kuramochi ............. 378 Session Ten David Follett ................ 399 Thomas E. Gard ............... 404 Paul Regan ................. 411 Gilbert R. Vasquez ............. 418 Conclusion ................... 448 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 6 1 P-R-O-C-E-E-D-I-N-G-S 2 (8:18 a.m.) 3 CHAIRMAN DOTY: Well, welcome, everybody, to the 4 Public Company Accounting Oversight Board's second public 5 meeting on the Board's Concept Release on ways to enhance 6 auditor independence. A couple of logistical matters. 7 Our practice here has been to take a break occasionally, 8 and I have the intention of providing for 10 or 15-minute 9 breaks before the third and fifth panel this morning, and 10 again, at appropriate intervals, the same intervals this 11 afternoon. So we will have breaks. Our methodology has 12 been to move through the statements of panelists and then 13 to open the floor for questions and engagement by the 14 Board. And we will begin the session this morning with 15 some brief opening statements by Board members that will 16 lend a little context to where we are in this process. 17 It's the second meeting on our Concept Release, 18 but it's the first meeting that the PCAOB is held on the 19 west coast of this type. This meeting will give us the 20 opportunity to benefit from important perspectives with 21 investors, financial statement preparers, academicians, 22 and firm professionals and regulators who participate in NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 7 1 our financial markets. We have venture capitalists, 2 audit committee chairs and CFOs on today's panels, and 3 we're eager to hear from all of them. 4 The Concept Release that we issued last August 5 was intended to begin the discussion of auditor 6 independence and the factors that can jeopardize the 7 fundamental investor protection -- that fundamental 8 investor protection of auditor independence. This round- 9 table is the next step in that journey. 10 The PCAOB benefits from the diverse range of 11 views that have been gathered through the comment 12 letters, the round-tables and the public discussions. 13 And this public meeting is an extension of that 14 interaction. We are honored today to have the 15 participation of former SEC Chairman, Harold Williams. 16 We're going it benefit from the wisdom that he has 17 accumulated over a long and distinguished career 18 protecting investors and promoting strong public 19 disclosure. 20 We're also deeply grateful for the time spent by 21 the many other speakers who are scheduled here today, in 22 preparing and participating -- preparing for and NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com 8 1 participating in this open meeting. We have had 2 statements submitted by the Black Economic Council, the 3 NACD, the National Association of Corporate Directors, 4 has a strong interest in this program and in this 5 outreach. And while we have not been able to include 6 everyone on the panel today in the space of the day, we 7 look forward to doing so in the future. 8 I would not predict the outcome of the debate, 9 but I expect that we will all benefit from a robust 10 debate on approaches to improving independence, 11 objectivity and professional skepticism. Most of all, 12 I want to thank the dedicated PCAOB staff, many of whom 13 you see before you, and whose efforts have made this 14 meeting possible, our Office of the Chief Auditor, our 15 General Counsel's Office, and the
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