United States

PCAOB solicits additional comment on proposed standard

FINANCIAL REPORTING INSIGHTS  | 

In 2016, the Public Company Accounting Oversight Board (PCAOB) issued Release No. 2016-002, Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard – Dividing Responsibility for the Audit with Another Accounting Firm, to address the lead auditor’s responsibilities with respect to other auditors that participate in the audit. In response to comments received on that proposal, the PCAOB recently issued a supplemental request for comment to seek input on revisions to the initial proposal. The PCAOB is considering the following, among several other, revisions:

  • When determining whether the participation of his or her firm is sufficient for the firm to carry out the responsibilities of a lead auditor in an audit that involves other auditors or referred-to auditors, the engagement partner would need to take into account an additional consideration – “the importance of the locations or business units for which the engagement partner’s firm performs audit procedures in relation to the financial statements of the company as a whole.” The participation of the engagement partner’s firm to serve as lead auditor ordinarily would not be sufficient if the referred-to auditors, in aggregate, audit more than 50 percent of the company’s assets or revenues.
  • In an audit that involves other auditors, the lead auditor would be required to understand the other auditor's "process for determining compliance" with the independence and ethics requirements and experience in applying the requirements, rather than understand the other auditor's knowledge of the requirements. The lead auditor also would need to obtain from each other auditor:
    • A written description of all relationships between the other auditor and the audit client or persons in financial reporting oversight roles at the audit client that may reasonably be thought to bear on independence
    • A written representation that it is, or is not, in compliance with SEC independence requirements and PCAOB independence and ethics requirements and, if it is not, a description of the nature of any noncompliance
  • At the beginning of an audit that involves other auditors, the lead auditor would be required to inquire about other auditors’ policies and procedures relating to the (a) assignment of individuals to audits conducted under PCAOB standards and (b) training of such individuals regarding the relevant financial reporting framework, PCAOB standards and rules, and SEC rules and regulations

The PCAOB’s supplemental request is available for comment until November 15, 2017

 

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