by Ken Rankin
Washington, D.C. — Searching for a devil in the details of accounting standard amendments proposed by the Public Company Accounting Oversight Board, top CPA firms and professional leaders recently cautioned the PCAOB against imposing additional disclosure requirements on auditors conducting “integrated” audits.
The board raised this possibility as part of a proposed new auditing standard on conforming amendments to PCAOB interim standards for auditors.
At issue is whether accountants conducting “integrated” audits — audits of both the client’s financial statements and of management’s assessment of internal control over financial reporting — should be required to report all internal control deficiencies, even those less severe than “significant deficiencies” or “material weaknesses.”
Deloitte & Touche responded with a flat “no,” explaining that, “We believe that the auditor should be able to apply judgment in determining whether to communicate internal control deficiencies that are less severe than significant deficiencies in a financial statement-only audit.”
Representatives from national firm Grant Thornton agreed, and noted that while the auditor “may choose to communicate deficiencies that management may not be aware of,” there is “no need to require the reporting of every minor internal control deficiency that comes to the auditor’s attention.”
Some of those who commented on the PCAOB’s proposal called on the board to draw an even clearer line.
PricewaterhouseCoopers told the PCAOB that only material weaknesses and significant deficiencies should be required to be reported.
PwC also argued that “the proposed guidance should explicitly acknowledge that the auditor’s objective in an audit of financial statements is to form an opinion on the financial statements and that the auditor is not obligated to search for significant deficiencies or material weaknesses.”
For some, the issue boiled down to whether the extra cost of requiring such reporting would yield sufficient benefits.
“We do not believe the reporting of such deficiencies meets the cost/benefit test and, as such, should not be part of the auditor’s required communications to management,” CPA C. Jeff Gregg said on behalf of the Texas Society of CPAs.
Others, however, urged the PCAOB to leave the door open for more rigorous audit reporting requirements in the future.
Although CPA and business consulting firm BDO Seidman argued against the additional audit disclosures “at this time,” the firm recommended that the board “continue to monitor the environment and consider additional requirements if they are clearly in the public interest and are cost-justified.”
But not all of the commenters favored limitations on internal control deficiency reporting.
The New York State Society of CPAs told the PCAOB that “all internal control deficiencies noted during the audit should be communicated in writing to management, the audit committee and, if appropriate, the board of directors.”
Under the plan advanced by the New Yorkers, internal control deficiencies would be “classified and grouped by severity (i.e. material weakness, significant deficiency and other).”
