The Public Company Accounting Oversight Board isconsidering making changes in the standards for audit confirmations after arecent wave of auditing scandals.
The PCAOB voted to issue for public comment a conceptrelease on possible revisions to the audit confirmations standard, AU Sec. 330.Confirmation is an audit process in which an auditor obtains and evaluates adirect communication from a knowledgeable third party in response to a requestfor information regarding account balances, transactions or other items thatcomprise a company's financial statements. Confirmations may be an importantsource of the evidence that auditors obtain as part of an audit of a publiccompany's financial statements.
The PCAOB is issuing the concept release to seek publiccomment on the potential direction of a standard-setting project that couldresult in an amendment to, or a new auditing standard on, the board's currentstandard on audit confirmations.
"The audit confirmation continues to be an importanttool in conducting an effective and quality audit," said PCAOB ChairmanMark W. Olson (pictured) in a statement. "It is important today to updatethe standard on confirmations, given the significant advances in technology andmethods of communication. This concept release will provide additionaltransparency to the public and allow for early input regarding the board'sdirection in considering a new standard."
The members of the board felt the standard neededupdating in the light of the wave of auditing scandals in recent years, such asthe Madoff, Satyam and Parmalat cases.
"Virtually everyone agrees that the current auditingstandard on confirmations should be modernized. It was written in the early1990s, before technology gave us today's sophistication in security andencryption of e-mail and online transactions," said PCAOB member Steven B.Harris. "The standard should address the use and reliability ofconfirmations received electronically. It should address the authenticity andaccuracy of direct access to online account information. The use of suchprocedures could improve the effectiveness and efficiency of the auditingprocess."
Other concerns about the current standard, he noted, arethat it does not consider how auditors should respond to the disclaimers andrestrictive language inserted by a confirming party - the use of which isincreasing. The standard also does not address an appropriate auditor responsewhen management asks the auditor not to confirm certain accounts.
The PCAOB is seeking comment on the concept release for a45-day period. For more information, visit www.pcaobus.org.
