Proposed changes to requirements for auditor supervision of other auditors
FINANCIAL REPORTING INSIGHTS |
The Public Company Accounting Oversight Board (PCAOB) recently 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. If finalized, the PCAOB's proposal would make the following changes to existing PCAOB standards:
- Amend AS 1201, Supervision of the Audit Engagement, to provide additional direction to a lead auditor on how to apply the standard’s principles-based supervision provisions to supervision of other auditors. The proposed amendments would prescribe certain procedures to be performed by the lead auditor in supervising other auditors' work.
- Amend AS 2101, Audit Planning, to incorporate and update requirements of current standard AS 1205, Part of the Audit Performed by Other Independent Auditors, to specify that they be performed by a lead auditor in an audit that involves other auditors. For example, the proposal would incorporate and revise requirements for determining a firm's eligibility to serve as lead auditor in an audit that involves other auditors.
- Amend AS 1215, Audit Documentation, to require that a lead auditor properly document which specific work papers of other auditors the lead auditor has reviewed, but not retained.
- Amend AS 1220, Engagement Quality Review, to require explicitly that the engagement quality reviewer evaluate the engagement partner's determination of a firm's eligibility to serve as lead auditor.
The PCAOB is also proposing to issue a new standard – AS 1206, Dividing Responsibility for the Audit with Another Accounting Firm. The proposed new standard would retain, with modifications, many of the requirements of AS 1205, including the requirement that a lead auditor disclose in its audit report which portion of the financial statements was audited by each other auditor. If finalized, proposed AS 1206 would include new requirements that a lead auditor:
- Obtain a representation from each other auditor that the other auditor is duly licensed to practice under the applicable laws of the relevant country or jurisdiction
- Determine whether each other auditor that would play a substantial role in the preparation or furnishing of the lead auditor's report is, or is required to be, registered with the PCAOB
- Disclose the name of the other auditor in the lead auditor's report
AS 1205 would be superseded by the proposed amendments and standard. The release is available for comment until July 29, 2016.