Update on PCAOB Activity
This week, the Public Company Accounting Oversight Board (PCAOB) formally issued proposed rules on audit reporting standards (Docket 029: Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits). Following a concept release originally issued in 2009, the proposed rule would require the engagement partner—along with any additional firms that participated in the audit—to be disclosed in the audit report. The window for public comment is open until January 9, 2012.
The PCAOB also has several outstanding concept releases that have the potential to change the relationship between auditors and the board of directors. The comment period for Docket 034: Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements and Related Amendments to PCAOB Standards closed September 30th, but included the use of an “auditor’s discussion and analysis,” (AD&A) as well as expanded use of emphasis paragraphs. Docket 037: Concept Release on Auditor Independence and Audit Firm Rotation is currently open for comment on whether mandatory audit firm rotation would improve auditor objectivity.
While NACD sees room for improvement in the current auditor’s reporting model, in our comment letter to Docket 034, we urge the PCAOB to carefully examine the proposed changes to ensure the benefits of the additional work outweigh the costs. There is concern that these proposals could upset the role management and auditors play in asserting and attesting to information. Additionally, these additions —especially the proposed AD&A—may create confusion regarding responsibilities for oversight of the financial reporting and external audit processes.
NACD continues to comment on the other developments arising from the PCAOB. We plan to alert our membership as future comment letters are released.