The Public Company Accounting Oversight Board issued a
The proposal includes changes to update aspects of AS 1105, Audit Evidence, and AS 2301, The Auditor's Responses to the Risks of Material Misstatement.
"The use of technology by auditors and financial statement preparers never stops evolving, and PCAOB standards must keep up to fulfill our mission to protect investors," said PCAOB Chair Erica Williams in a statement. "Today's proposal is another key part of our strategic drive to modernize PCAOB standards."
"PCAOB standards do not preclude auditors from using technology-assisted analysis to perform audit procedures," she said in a separate statement. "But they also do not provide auditors with specific guidance for how to use technology-assisted analysis. And while technology has evolved considerably in the past 13 years, the standards we are addressing today have not been substantially updated since 2010. Audit quality would benefit if our standards included additional direction addressing specific aspects of designing and performing audit procedures that involve technology-assisted analysis of information in electronic form."
Existing PCAOB standards relating to audit evidence and responses to risk were issued back in 2010, and the current board under Williams' leadership has been trying to update those older standards. Since that time, companies have greatly expanded their use of information systems that maintain large volumes of information in electronic form, the PCAOB noted. As a result, auditors have greater access to large volumes of company-produced and third-party information in electronic form that could potentially serve as audit evidence. At the same time, some auditors have greatly expanded their use of data analysis tools.
The PCAOB staff's research shows auditors are using technology-assisted analysis in audit procedures, but also indicates that audit quality could be improved if the standards included more direction to address specific aspects of designing and performing audit procedures that involve technology-assisted analysis.
The proposal aims to improve audit quality by reducing the likelihood that an auditor who uses technology-assisted analysis will issue an opinion without obtaining sufficient appropriate audit evidence. In particular, the proposal would bring greater clarity to auditor responsibilities in the following areas:
- Technology-assisted analysis usually involves analyzing huge amounts of information in electronic format. The proposal would emphasize auditor responsibilities when evaluating the reliability of such information. For example, when auditors test a company's controls over electronic information, their testing should include controls over the company's information technology related to such information.
- Technology-assisted analysis can be used to provide audit evidence for various purposes in an audit. For example, performing risk assessment procedures when planning an audit and performing substantive procedures in response to the auditor's risk assessment. The proposal would specify that if an auditor uses audit evidence from an audit procedure for more than one purpose, the auditor should design and perform the procedure to achieve each of the relevant objectives.
- When designing and performing substantive procedures, auditors can use technology-assisted analysis to identify transactions and balances that meet certain criteria and warrant further investigation. For example, auditors can identify all transactions within an account processed by a certain individual or exceeding a certain amount. The proposal would clarify the factors the auditor should consider as part of that investigation, including whether the identified items represent a misstatement or a control deficiency or indicate a need for the auditor to modify its risk assessment or planned procedures.
The PCAOB is asking for comments on the proposal by Aug. 28, 2023. Throughout the proposal, PCAOB requests comments on specific aspects of the proposed amendments. It's encouraging people to respond to these questions, as well as to comment on any aspect of the proposal, and to provide reasoning and relevant data supporting their views.
