The Public Company Accounting Oversight Board has voted to adopt a new auditing standard on engagement quality review and to issue a concept release on requiring the engagement partner to sign the audit report.
Auditing Standard No. 7, also known as the EQR standard, provides a framework for an engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by an engagement team in forming an overall conclusion about the engagement.
The EQR standard focuses the engagement quality reviewers attention on the areas that are most likely to contain a significant engagement deficiency and increases the likelihood of identifying and correcting those deficiencies before the audit report is issued, said PCAOB Chairman Mark W. Olson in a statement. The new standard goes a long way in clarifying the process. Olson plans to step down at the end of the month, and will be succeeded by Acting Chairman Daniel Goelzer (see Goelzer Named PCAOB Acting Chairman).
The Sarbanes-Oxley Act of 2002 directs the PCAOB to include in its auditing standards a requirement that each registered public accounting firm provide a concurring or second partner review and approval of [each] audit report (and other related information), and concurring approval in its issuance, by a qualified person (as prescribed by the board) associated with the public accounting firm, other than the person in charge of the audit, or by an independent reviewer (as prescribed by the board).
The board initially proposed the auditing standard on Feb. 26, 2008, and re-proposed it on March 4, 2009.
AS No. 7 applies to all audit engagements, and engagements to review interim financial information, conducted pursuant to the standards of the PCAOB. The standard supersedes the PCAOBs quality control standard, SECPS Requirements of Membership, Section 1000.08(f); 1000.39, Appendix E. The standard, if approved by the Securities and Exchange Commission, will become effective for both the EQR of audits and the EQR of interim reviews for fiscal years beginning on or after Dec. 15, 2009.
Separately, the PCAOB is also seeking comment on a concept release to consider the effects of a potential requirement for the engagement partner to sign the audit report. Any such requirement would be in addition to the existing requirement for the audit firm to sign its name on the audit report.
The PCAOB has discussed the engagement partner signature with its Standing Advisory Group three times, and taken a close look at the Treasury Advisory Committee's recommendations, as well as the new signature requirements for member states in the European Union, said Olson. We want to take a hard look at this issue and its potential benefits for investors, and look forward to a robust and informative comment period.
The PCAOB is seeking comment on the concept release for a 45-day period.
For more information, visit www.pcaobus.org.
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