Statement on Supplemental Request for Comment: Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard — Dividing Responsibility for the Audit with Another Accounting Firm

Date
Sept. 26, 2017
Speaker
James R. Doty, Chairman
Event
PCAOB Open Board Meeting
Location
Washington

Earlier this year, PCAOB-registered accounting firms began disclosing information that for the first time allows investors to see, for any particular audit, how much of the audit was performed by firms other than the one with its name on the audit report.

These disclosures are pursuant to a rule adopted by this Board in December 2015. They are important because in today's world many audits, particularly for the largest companies, are multinational.

The proposal before us today comes at this situation from a different perspective – not one of ensuring transparency but one of ensuring appropriate involvement by the lead auditor.

Our existing auditing standards prescribe the responsibilities of the lead auditors in these situations.

The supplemental request for comment we are considering today builds on our initial proposal in April 2016: to strengthen existing requirements for the lead auditor's involvement in the work of other auditors; and to establish a more uniform approach to a lead auditor's supervision of other auditors.

This supplemental request asks for additional input on certain revisions and clarifying changes to that proposal in response to some of the comments received.

As the prevalence and complexity of audits involving other auditors has increased over the years, PCAOB inspectors have observed some firms changing their approaches while others have not. Inspections have reviewed engagements that are not well managed, and where work performed by other auditors does not meet the objectives of that auditor's role in the audit.

The proposed refinements are intended to clarify what, in my view, is a risk-based and scalable approach to improving the quality of audits involving other auditors. The proposal would direct the lead auditor's supervisory responsibilities to the areas of greatest risk, consistent with our risk assessment standards.

It would also require more communication by the lead auditor, as well as a more robust evaluation of the other auditor's qualifications and work.

I look forward to further public comment.