The Public Company Accounting Oversight Board today released a request for public comment from the PCAOB Center for Economic Analysis that will inform the first post-implementation review of the overall effect of previously adopted PCAOB rules and standards.
The goal of the program is to evaluate whether adopted rules and standards are accomplishing their intended purposes, and identify any unintended consequences, as well as gauge the overall effects of the rules or standards.
"The PCAOB is committed to furthering the use of economic analysis to better serve the investing public with well-informed regulatory decision making," said PCAOB Chairman James R. Doty. "The launch of the post-implementation review program is an important step in achieving a holistic view of the economic impact of individual auditing standards and rules."
This request for comment will provide the Center with information to evaluate AS No. 7, Engagement Quality Review – called AS 1220 under the PCAOB's reorganized standards. The engagement quality review (EQR) standard was adopted in 2009, replacing an auditing standard that had been in place since the 1970s.
The standard requires an engagement quality reviewer to evaluate the significant judgments made by the engagement team. When the EQR standard was adopted, the Board indicated that a "well-performed EQR can serve as an important safeguard against erroneous or insufficiently supported audit opinions and, accordingly, can contribute to audit quality." The Board accordingly expected the standard to provide a meaningful check on the work performed by the engagement team and increase the likelihood that a registered firm will catch significant engagement deficiencies before it issues its audit report.
"This initiative is a great example of the value economic analysis adds to the PCAOB oversight process," said Luigi Zingales, the Center's Founding Director and Professor at the University of Chicago's Booth School of Business. "The engagement quality review standard is ideal for the Center's first evaluation. The standard addresses a long-standing audit practice and has been in effect long enough to provide a sound basis for gauging practices before and after the new requirements."
In addition to conducting a careful analysis of both internal and external data, the Center is requesting public comment on the overall effect of the EQR standard, including the following questions:
Responses to the request for comment are due July 5, 2016 and will help inform a public report on the post-implementation review of the EQR standard.
Read the full Request for Comment.