On May 13, the Public Company Accounting Oversight Board (PCAOB) approved two new standards: one on auditors’ quality controls (QC) and one on the general responsibilities of the auditor in conducting an audit, Accounting Today and The Wall Street Journal reported.
The new quality control standard would require all PCAOB-registered firms to identify their specific risks and design a QC system that includes policies and procedures to guard against those risks.
The new standard will strike a balance between a risk-based approach to quality control and a set of mandates, the PCAOB said in its announcement. Once a year, firms will report to the PCAOB about how those policies and procedures are working. Two firm leaders who oversee the system and its operability will have to personally certify the report. Firms won’t be required to report these details to their clients’ audit committees.
"When QC systems operate ineffectively, investors are put at risk," said PCAOB chair Erica Williams during an open meeting Monday to consider the new standards, Accounting Today reported. "But, when QC systems operate effectively, quality audits performed in accordance with applicable professional and legal requirements are likely to follow—leaving investors better protected."
Firms have increasingly pushed back against recent PCAOB proposals that they say would significantly expand their responsibilities with needless extra work. “Rather than potentially dismantling the audit profession in simultaneously setting copious standards that ironically make this profession exceptionally unappealing to future accountants and auditors, we as a regulator should thoughtfully balance the scale using evidence-based quantitative and qualitative analysis to justify the need for our standards,” said PCAOB member Christina Ho in voting against the new standard.
The Center for Audit Quality (CAQ) supported the PCAOB’s move to revise quality-control rules, the Journal reported, but it said that the PCAOB should provide more specific quality objectives for auditors to meet, as well as clarify that its definition of firm personnel wouldn’t include nonemployee contractors and consultants.
The other rule, unanimously approved by the PCAOB, concerns the general responsibilities of the auditor in conducting an audit, along with related amendments to other PCAOB standards. It would enhance and consolidate a group of standards that were adopted on an interim basis by the PCAOB in April 2003 and that address the general principles and responsibilities of the auditor, such as due professional care, professional skepticism, competence and professional judgment.
Under the rule, auditors will have up to 14 days to assemble their final set of audit documentation, as opposed to the 45 days they are now granted. The rule could allow the PCAOB to start inspections up to a month earlier, as it currently cannot begin its inspection of any given registered firm until its auditors have put together a final set of audit documentation.
"The new standard and amendments before us today would modernize, clarify, and streamline the general principles and responsibilities of auditors and provide a more logical presentation, which should enhance the useability of the standards by making them easier to read, understand and apply," said Williams, Accounting Today reported.
The new requirements, pending SEC approval, would go into effect for audits of financial statements for fiscal years ending on or after Dec. 15. Firms that audit 100 or fewer companies would have an additional year to comply with the 14-day requirement.