Highlights of Recent PCAOB Activities
Introduction
In late 2021, the SEC appointed a new PCAOB chair, Erica Williams, and three new
Board members: Christina Ho, Kara Stein, and Anthony Thompson. Duane DesParte,
who was appointed in 2017, is continuing his service as a Board member. In
announcing the new appointments, SEC Chair
Gary Gensler noted that “[f]inance is about trust, and the PCAOB has a critical
role to play in ensuring that public company financial disclosures can be
trusted by investors.” The newly constituted Board has been considering its
primary areas of strategic focus to ensure that it is adapting to the changing
world in a way that is consistent with its mission, including creating new
advisory groups and updating the standard-setting and research agendas.
This Heads Up discusses certain recent activities undertaken by the PCAOB
as a result of what the Board’s May 4, 2022, news release describes as its “assessment of priorities
that advance audit quality to protect the interest of investors.”
The PCAOB’s New Advisory Groups
In January 2022, the Board announced its intent to create an Investor Advisory Group
(IAG) and a Standards and Emerging Issues Advisory Group (SEIAG). The Board adopted
charters for the groups and named new members of both groups in March 2022. These
newly formed advisory groups are intended to enable the PCAOB to obtain essential
input and insights from investors and other stakeholders on a wide variety of
matters related to improving audit quality, including PCAOB standards.
The inaugural meetings for the newly appointed IAG and SEIAG were held virtually on
June 8, 2022, and June 15, 2022, respectively. Both meetings included presentations
by PCAOB staff that provided an overview of the various PCAOB divisions and offices,
as well as discussions on the PCAOB’s strategic plan and its standard-setting
agenda. Broad feedback and perspectives were shared by both IAG and SEIAG members in
response to the questions posed. The PCAOB maintains Web pages for
both advisory groups on which more details about the meetings are provided.
In her statement on the adoption of charters
for the new advisory groups, Chair Williams observed that
“[f]or the PCAOB to faithfully execute its mandate to
protect investors and further the public interest in the
preparation of informative, accurate and independent audit
reports, it is critical that the Board engage with
stakeholders with diverse viewpoints, including investor
advocates who advance the goal of investor protection that
is at the heart of our mandate.”
The PCAOB’s Adoption of New Requirements for the Lead Auditor’s Use of Other Auditors
As discussed in Deloitte’s October 15, 2021, Heads
Up, the roles of other accounting firms and individual
accountants in audits (collectively, “other auditors”) continue to take on greater
significance with companies’ increasingly global operations. Such cross-border
operations pose unique challenges because of a number of factors — including a
myriad of laws and regulations, such as those related to access to information and
the ability to conduct oversight.
Consequently, on June 21, 2022, the PCAOB issued Release 2022-002,1 in which the Board adopted (1) amendments to its auditing standards and (2) a
new auditing standard that applies to a lead auditor’s use of other auditors. The
new provisions are intended to strengthen existing requirements and align the
applicable requirements with the PCAOB’s risk-based supervisory standards. Subject
to the SEC’s approval, the amendments and new standard will take effect for audits
of financial statements for fiscal years ending on or after December 15, 2024.
Among the provisions in Release 2022-002 are the following:
- Rescission of AS 1205, Part of the Audit Performed by Other Independent Auditors.
- Amendments to AS 2101, Audit Planning, and AS 1201, Supervision of the Audit Engagement.
- Adoption of a new auditing standard, AS 1206, Dividing Responsibility for the Audit With Another Accounting Firm.
Release 2022-002 states that the “amendments to the Board’s auditing standards are
intended to improve PCAOB standards principally by (i) applying a risk-based
supervisory approach to the lead auditor’s oversight of other auditors and (ii)
requiring that the lead auditor perform certain procedures when planning and
supervising an audit that involves other auditors.” In addition, the Release notes
that the “amendments take into account recent practice developments in the lead
auditor’s oversight of other auditors’ work, including the greater use of
communication technology.”
“As we approach the twentieth anniversary of the enactment of
the Sarbanes-Oxley Act,” said Chair Williams in her
statement on the PCAOB’s adoption of
new requirements for the lead auditor’s use of other
auditors, “we have an exciting task ahead of us: to
modernize and streamline our standards and rules to meet the
modern-day challenges and complexities, and to do so in a
manner that continues to put our investor protection mission
front and center. This is the first standard this newly
constituted Board has had the opportunity to consider.”
Further, in a news release accompanying the
announcement of the PCAOB’s adoption of the new
requirements, Chair Williams stated that “[t]oday, after an
extensive process of analysis and public input regarding the
lead auditor’s use of other auditors, the Board is taking
action to improve audit quality and strengthen investor
protection. These amendments will require audit firms to
ensure that lead auditors sufficiently plan, supervise, and
evaluate the work of other auditors.”
The PCAOB’s Standard-Setting and Research Agendas
In May 2022, the PCAOB updated its standard-setting and research agendas, which, as
indicated on the Board’s Web site, are “primarily focused on enhancing investor
protection by prioritizing the areas where improvements to PCAOB standards could
have the most significant impact on audit quality and the public interest.” In a
news release announcing the new agendas, Chair Williams stated
that the “agendas represent the Board’s focus to modernize, simplify, and enhance
our professional standards.”
The PCAOB’s updated standard-setting agenda is divided into
“short-term” and “mid-term” projects. The six short-term standard-setting projects
are projects under current (or recent) active development by the PCAOB staff in
which a Board action (e.g., issuance of a proposed standard or adoption of a final
standard) is (or was) anticipated in less than 12 months. One such project, which is
awaiting final SEC action, is that related to the lead auditor’s use of other
auditors (discussed above). The remaining short-term projects are intended to
strengthen auditing, quality control, and other professional practice standards in
the following targeted areas:
- Audit firm quality control systems.
- The auditor’s consideration of possible noncompliance with laws and regulations.
- Updates to the Board’s interim attestation standards.
- The auditor’s evaluation and reporting of a company’s ability to continue as a going concern.
- Use of confirmations in an audit.
Mid-term standard-setting projects are projects in which the PCAOB
staff is actively engaged but no Board action is anticipated within the next 12
months. The four mid-term projects focus on the following:
- Substantive analytical procedures.
- Fraud.
- Enhancements and updates to the Board’s interim ethics and independence standards.
- The modernization and streamlining of the Board’s interim standards to reflect the impact of technological changes to financial reporting and audit practice as well as the audit profession’s evolution over time.
The PCAOB’s research agenda continues to include projects on audit evidence and data
and technology. The PCAOB staff has indicated that it is engaged in these research
projects to determine whether there is a need for changes to existing standards or
other regulatory responses. If standard setting is deemed appropriate, projects will
be added to the standard-setting agenda. If standard setting is not pursued,
consideration will be given to whether any other action is warranted.
Chair Williams and other PCAOB Board members highlighted throughout the IAG and SEIAG
meetings that while the Board recently issued its updated standard-setting and
research agendas, those agendas are intended to be dynamic, and changes will be made
as needed to respond to the most pressing issues facing the profession.
Footnotes
1
PCAOB Release No. 2022-002, Planning and Supervision of
Audits Involving Other Auditors and Dividing Responsibility for the
Audit With Another Accounting Firm.