Doty, who said he was expressing his own views, made the comments at the International Forum of Independent Audit Regulators (IFIAR) held in London this week.
He also claimed that if these two areas of auditing were enhanced, would bring in further protection for investors.
Doty highlighted the fact that many investors do not realise most multi-national audits are conducted by a consortium of affiliated firms with principal auditors relying on high-level reports from subsidiary auditors.
“Notorious examples of frauds directed by corporate headquarters but perpetrated in remote locations,” he said adding this means they remain out of the reach of and sight of auditors and regulators.
Based on the experience at the PCAOB, Doty underscored the benefits of evaluating the audit work carried out by different firms in multiple jurisdictions and urged for further efforts to deepen regulatory coordination.
“It is an amazing feat of regulatory cooperation that, in the last few years, we have found ways to work together [and] gain insights about cross-border audits that neither of us would have learned separately,” Doty said.
Auditor independence
Doty reiterated that it is necessary to find ways to reinforce auditor independence using the current debate in the US where “mandatory terms limits” are among the proposals being discussed as an example of ways this could come about.
“Could term limits release auditors from the natural incentive to do what they think may be necessary to foster and maintain long client relationships? Would knowing that another auditor will follow cause the first to stand firmer?” Doty asked.
During his speech, teemed with historical references, Doty reminded that mandatory rotation existed already in the nineteenth century when the UK parliament passed the Companies Clauses Consolidation Act of 1845.
“I note that the 1845 Act also required rotation of auditors, such that one member was required to go out of office after the first ordinary meeting each year, with eligibility to rotate back on the committee upon re-election,” Doty pointed out.
Doty, who read history at Oxford before moving to the US, said this law continued a 600 years old practice.
One that required “every auditor shall not hold any office in the company, nor be in any other manner interested in its concerns, except as a shareholder,” Doty said quoting the Act.
