The Public Company Accounting Oversight Board wants to hear more comments about a proposal to strengthen its existing requirements for a lead auditor's use of other auditors and impose a more uniform approach.
The PCAOB voted Tuesday to issue a supplemental request for comment detailing a lead auditor's responsibilities for planning, supervising and evaluating the work of other auditors. The document responds to some comments the PCAOB received to earlier proposals asking for clarification to some provisions and modifications to others.
“In today's world, many audits, particularly for the largest companies, are multinational,” said PCAOB Chairman James R. Doty in a statement. “This proposal is intended to ensure the appropriate involvement of lead auditors in the work of other auditors.”
The board has been working on the topic since 2010 and issued a proposal last year that generated a flurry of comments.
The PCAOB noted that important audit work is performed on many audits by firms or individual auditors outside the firm that actually issues the audit report. The board wants to hear more input on some of the revisions it made to its initial proposal on the use of these other auditors.
For example, in response to the comments it received, the PCAOB is proposing some clarifications and tweaks to the requirements for providing instructions to, and reviewing the work of, other auditors.
“We take public comments very seriously in the standard-setting process," said PCAOB Chief Auditor and Director of Professional Standards Martin F. Baumann in a statement. "The clarifying changes and other revisions being proposed by the board today would further improve the requirements for audits involving multiple firms."
PCAOB inspectors have noticed some audit firms have changed their approach in the past few years to using other firms as the frequency of audits involving other auditors has risen. Other firms, though, haven’t changed their approach.
“As the supplemental request notes, the work of other auditors accounts for a significant share of the audit in many instances,” said PCAOB member Steven Harris.
“When more than one audit firm is involved in an audit, it is important for investor protection that the lead auditor assures that the audit is performed in accordance with PCAOB standards and that sufficient appropriate evidence is obtained to support the audit opinion,” said PCAOB board member Jeanette Franzel. “As described in the 2016 proposing release, the need for stronger standards in this area has become evident.”
The proposed requirements aim to increase the lead auditor's involvement in the work of other auditors and impose a uniform approach to the use of other auditors in various ways. They would direct the lead auditor's supervisory responsibilities to the areas of greatest risk, in accordance with PCAOB risk-assessment standards. They would make it clear that, to act as lead auditor, an auditing firm must itself audit a meaningful portion of the financial statements. The proposed rules would also require more explicit procedures to force the lead auditor to increase its involvement in the work of other auditors, including greater communication and more robust evaluation of other auditors' qualifications and work.
“I support the proposed changes to our standards concerning the supervision of audits involving other auditors and the division of responsibility between auditors, as well as today's request for supplemental comment,” said PCAOB member Lewis Ferguson. “Although the changes identified in today's proposal are incremental in nature when compared to the draft proposal issued in April 2016, they provide important clarifications to that proposal. They further refine our original objective of fostering audit quality in audits in which more than one auditor participates.”
The proposal also includes a new standard, "Dividing Responsibility for the Audit with Another Accounting Firm" (AS 1206), along with amendments to some of the PCAOB’s existing standards.
The PCAOB is asking for public comments on the latest proposals by Nov. 15, 2017. Comments can be sent through the proposal's rulemaking docket page.
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