Officials at the Public Company Oversight Board unveiled an aggressive agenda for the coming year that may result in as many as 11 new standards for auditors in areas ranging from corporate fraud detection and reporting to wrestling with related-party transactions.
The board's new standards-setting priority list was outlined during a Nov. 17 meeting of its Standing Advisory Group -- a panel of experts from industry, government, the investment community and the accounting profession created to assist the PCAOB in developing new standards for auditors.
The top priority of the PCAOB's standards-setting staff for 2005 will be to hammer out proposed new ground rules governing the ability of accountants to offer tax services to their audit clients. Although the Sarbanes-Oxley Act permits firms to provide tax services to audit clients with the approval of the company's audit committee, PCAOB Chairman William McDonough raised serious concerns about this practice earlier this year.
Citing "new concerns" about tax shelter programs being sold to audit clients, McDonough said that the "extremely aggressive, if not abusive, tax strategies" that are being offered by some accounting firms "may, by their nature, impair the objectivity of the auditor."
PCAOB officials said that the board's 12-member standards-setting staff is already at work drafting new standards that will address concerns about auditor independence and tax service.
Other top priorities for 2005 include the development of proposed new standards governing the "detection and reporting of financial fraud," the relative authority of auditing guidance in the board's interim auditing standards, and communications between auditors and corporate audit committees.
The extensive list of standards planned for development by the PCAOB's fledgling staff raised eyebrows among members of the advisory group, some of whom warned that the board may be biting off more than it can chew. Although PCAOB officials explained that the board doesn't necessarily intended to formally propose all 11 standards on the list during calendar year 2005, one advisory group member cautioned that the list of priorities is "way more than can be done by the staff you have."
Former Securities and Exchange Commission chief accountant Lynn Turner also expressed concerns that the PCAOB was looking at a "full plate" of standard proposals for the coming year, and suggested that the board concentrate instead on a few high-priority issues.
But other advisory group members welcomed the ambitious standards-setting agenda. "I encourage the board to be aggressive" in developing standards, and to "have a wide range of projects" under way, Government Accountability Office financial management director Jeffrey Steinhoff said.
Other priority items on the PCAOB's agenda include drafting new audit standards governing:
- Engagement quality review (also known as concurring or second partner review);
- Auditing related-party transactions;
- Consistency of application of generally accepted accounting principles;
- Use of confirmations in an audit;
- Auditing fair value measurements and disclosures;
- Elements of quality control for registered firms; and,
- Assessing audit risk.
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