PCAOB Expected to Reexamine Audit Transparency Proposal

By Jason Bramwell
 
In an effort to bring greater transparency to public company audits, the Public Company Accounting Oversight Board (PCAOB) may reexamine a proposal before the close of 2013 that could require disclosure of the audit engagement partner's name in the audit report.
 
The PCAOB may also require disclosure in the audit report of other accounting firms and other persons not employed by the auditor who took part in the audit. 
 
According to the PCAOB standard-setting agenda dated June 30, 2013, the project, "Audit Transparency: Identification of the Engagement Partner and Other Public Accounting Firms or Persons That Are Not Employed by the Auditor but Participate in the Audit," is scheduled for adoption or re-proposal sometime between now and December.
 
"The transparency proposal is a priority of Chairman [James] Doty, and we expect to issue something by year-end," Colleen Brennan, director of the PCAOB Office of Public Affairs, told AccountingWEB.
 
In October 2011, the PCAOB issued for public comment a proposal that would direct registered public accounting firms to disclose the name of the audit engagement partner in the audit report and on the PCAOB Annual Report form. However, the proposal did not require the audit engagement partner to sign his or her name to the audit report.
 
According to the PCAOB, the audit transparency proposal would make the engagement partner's name readily available to the users of the audit report while mitigating concerns about minimizing the firm's role in the audit.
 
The proposal also would require other accounting firms and people not employed by the auditor but who participated in the audit be revealed in the audit report. This disclosure would enable investors to evaluate the other participants in the audit in the same manner that they evaluate the auditor. Investors would also be able to verify whether a disclosed firm or person has had a disciplinary history with the PCAOB or other regulators.
 
The comment period for the proposal ended on January 9, 2012, and PCAOB staff has analyzed the comments and is drafting revisions for the board's consideration, according to the PCAOB.
 
Making the auditor's report more relevant to investors was the basis of a proposal the PCAOB issued last month for a new auditing standard and related amendments to enhance the auditor's reporting model
 
The new auditing standard  The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion – would retain the pass/fail model in the existing auditor's report, but would provide additional information to investors and other users of financial statements about the audit and the auditor.
 
According to the PCAOB, the proposed auditor reporting standard would require the following:
  • The communication of critical audit matters as determined by the auditor.
  • The addition of new elements to the auditor's report related to auditor independence, auditor tenure, and the auditor's responsibilities for  and the results of  the auditor's evaluation of other information outside the financial statements.
  • Enhancements to existing language in the auditor's report related to the auditor's responsibilities for fraud and notes to the financial statements
Another related proposed auditing standard  The Auditor's Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor's Report – describes the scope of "other information" and procedures the auditor is required to perform, including procedures when the auditor identifies a material inconsistency between the other information and the audited financial statements, a material misstatement of fact, or both, according to the PCAOB.
 
The scope of "other information" in an annual report filed on Form 10-K would include, among other items, selected financial data and management's discussion and analysis.
 
Comments on the proposed PCAOB standards and related amendments are due by December 11, 2013. Additionally, the board is considering holding a public roundtable in 2014 to discuss the proposed standards and comments received.
 
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