Fact Sheet: PCAOB Proposal for Audits Involving Other Auditors

The Public Company Accounting Oversight Board is proposing amendments to certain existing standards to strengthen the current requirements and impose a more uniform approach to the lead auditor's supervision of other auditors, and a new auditing standard for situations in which the lead auditor divides responsibility for the audit with another firm.

The Board's proposal will be open for public comment through July 29, 2016.

Background and Reasons to Improve Existing Requirements for Audits Involving Other Auditors

Many companies have significant operations around the world. When auditing a multinational company, a lead auditor often needs participation of other firms or individual accountants to complete the audit.

The use of other auditors is especially prevalent among audits of larger companies performed by larger accounting firms. PCAOB data indicate that other auditors are used in about 55 percent of audits performed by U.S. global network firms (GNFs)[1] and about 30 percent of audits performed by non-U.S. global network affiliate firms.

Additionally, about 80 percent of Fortune 500 audits performed by U.S. global network firms involved other auditors, according to a PCAOB analysis of data from Audit Analytics and Standard & Poor's.

Work performed by other auditors can account for a significant share of the audit.

In audits involving other auditors selected by the PCAOB for inspection, other auditors on average audited between one-third and one-half of the total assets and total revenues of the audited company.

Without adequate supervision by a lead auditor, deficiencies in the work of other auditors can result in deficient audits.

While many auditors properly supervise the use of other auditors, PCAOB inspectors have found that other firms need to strengthen their practices. Inspectors have identified audit deficiencies in the work of other auditors that the lead auditors did not identify or address.

What is Being Proposed?

In brief, the Board's proposal would make the following changes to existing PCAOB auditing standards:

The Board is also proposing a new standard – AS 1206, Dividing Responsibility for the Audit with Another Accounting Firm.

AS 1205, Part of the Audit Performed by Other Independent Auditors, would be superseded by the proposed amendments and proposed standard.

[1] GNFs are the accounting firms around the world that are members of the six largest networks of accounting firms.