The Public Company Accounting Oversight Board has approved amendments that would reduce the frequency of inspections of accounting firms that do not regularly issue audit reports.
The board adopted two amendments to PCAOB Rule 4003 that would eliminate a requirement that the board regularly inspect each registered public accounting firm that plays a "substantial role" in audits but does not issue audit reports. The amendments would also eliminate a requirement that the board inspect each registered public accounting firm that issues an audit report, even if the firm does not regularly issue audit reports.
The amendments don't affect firms that regularly issue audit reports. "I believe it is best to direct our scarce inspection resources to the approximately 800 firms that currently and regularly act as the principal auditor for an issuer," said PCAOB Chairman Mark W. Olson.
He noted that the rule change is consistent with the "risk-based focus" of the board's inspection program. However, Olson cautioned, "No one should misinterpret this amendment as in any sense lightening up on what is required" of a firm that does play a substantial role in audits. The PCAOB retains the discretion to inspect any registered firm at any time and could decide to inspect a firm that played a substantial role in a particular engagement, even if it wasn't the principal auditor.
Board member Daniel L. Goelzer noted that the PCAOB had learned from past inspections that it needed to set priorities. "There are currently over 1,800 firms registered with the board," he said. "Only 802 of those - fewer than half - have actually issued an audit report on a U.S. public company in one or both of the two most recent years. It makes obvious sense for the board to concentrate its inspections on those firms. For the others, we should rely on the ability to inspect on a case-by-case basis when the circumstances warrant."
The amendments will be submitted to the Securities and Exchange Commission for approval under the Sarbanes-Oxley Act.
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