The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
May 23— Some Public Company Accounting Oversight Board's Standing Advisory Group members expressed concerns over PCAOB requirements of a lead auditor who supervises all other auditors.
Some of these SAG members May 19 argued that the PCAOB proposal was “going a bit too far.”
The PCAOB's April 12 proposal aimed to improve audit quality by creating a more uniform risk-based approach.
Under the proposal, lead audit firms would be required to demonstrate their commitment to the “sufficiency” of the work prepared by their affiliates—particularly in cross-border audits conducted by larger international audit firms (12 APPR 10, 5/20/16), (12 APPR 08, 4/22/16).
According to the PCAOB's website, the SAG members include auditors, investors, public company executives and others. The SAG meets two or three times a year and is chaired by the PCAOB Chief Auditor and Director of Professional Standards.
PCAOB staff Keith Wilson and Lillian Ceynowa said the April 12 proposal directed the lead auditor's attention to the areas of greatest risk and spelled out specific responsibilities for the lead auditor.
These include to:
Brandon Reese, deputy director, Office of Investment, for the AFL-CIO, said that it was a “hair- raising” moment when he first read the proposal and realized the extent of the expectation gap between what he assumed was “already happening” and the reality of the deficiencies in the supervision of other auditors' work.
Many SAG members expressed support for increasing the lead auditors responsibility.
Philip Santarelli, partner, Baker Tilly Virchow Krause LLP agreed that AU 543: Part of Audit Performed by Other Independent Auditors needed “modernization” and to “change with the times.”
However, Richard Murray, chief executive officer of Liability Dynamics Consulting LLC—and previously a member of the Advisory Committee on the Auditing Profession for the Treasury Department—took the contrary position. Murray said the PCAOB was attempting to shift the regulatory burden for “the challenges of transnational auditing in the face of globalization,” to the lead auditor.
Murray was particularly opposed to the requirement for the lead auditor to “self-declare” the sufficiency of its participation in order to qualify as lead auditor.
Chief PCAOB auditor Martin Baumann responded that it is already the lead auditor's responsibility under current rules to be responsible for the work of other auditors.
“It's going a bit too far,” in terms of burdening the lead auditor, said Phillip Johnson, SAG member and previous head of Audit Quality and Risk Management at Deloitte, U.K.
Johnson and others said the standard had ignored the concept of a functioning multi-national network.
David Kane, of Ernst & Young LLP, said that “a lot of training from the U.S. had been exported around the world” in terms of training local firms.
Hanson and Baumann said that in the case of a functioning network, the U.S. lead auditor would be credited with having met its supervisory responsibilities, even if the U.K. affiliate had conducted a greater portion of the overall audit.
Baumann said that he hoped that the standard was sufficiently principles-based to allow for varying circumstances.
Hanson said that the board's proposal aimed to “level set some of the best practices” to achieve uniformity of practice throughout the profession.
Kane noted that his firm had already made changes to their practices, after specific suggestions from PCAOB inspections staff.
For example, EY now asked whether the auditor in the U.K. was sufficiently qualified in terms of understanding U.S. principles.
Baumann responded that both the board recognized that a number of firms had “upped their game” by remediating any deficiencies pointed out by the inspections staff. He added that those firms would probably have very little, if any, changes to make to their procedures to satisfy any new board rules.
SAG members talked about the global ramifications of increasing transnational audits.
Many multi-national firms use a combination of international auditing standard 600 and PCAOB standards, said Baumann.
He noted the interconnection of many of the topics SAG members were being asked about, like quality controls and non-GAAP metrics see related story.
International Auditing and Assurances Standards Board Chairman Arnold Schilder noted that IAASB is requesting comments on many of the same issues SAG is discussing—like its project of revising ISA 600 (12 APPR 07, 4/8/16).
To submit comments on docket 42 go to http://src.bna.com/ffL
To contact the reporter on this story: Laura Tieger Salisbury in Washington at email@example.com
To contact the editor responsible for this story: Ali Sartipzadeh at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)