See the PCAOB’s press release; highlights from the PCAOB board meeting (based on listening to the webcast) follow.
Background: The PCAOB is required under the Sarbanes-Oxley Act to mandate all public company audits undergo a concurring partner review (CPR). Currently, under the interim standards which PCAOB adopted when it was first formed (i.e. standards previously established by the AICPA), only member audit firms that were members of the AICPA’s SEC Practice Section are required to undergo concurring partner review. PCAOB staff noted today that under the current standards, generally, non-U.S. audit firms and smaller audit firms are not subject to the existing CPR requirements. In issuing its proposal last year for Engagement Quality Review (EQR), the PCAOB was proposing to not only extend the current CPR requirements to all registered audit firms, but to enhance the quality of the CPR (renaming it as well to EQR). Some commenters on the original proposal voiced concern that the EQR as proposed by PCAOB would add significant cost and time, as it appeared to those commenters to amount to a requirement to perform a ‘re-audit’. The PCAOB believes its amended proposal (which it approved for release for public comment today) addresses these concerns through various changes to the original proposal.
Effective Date: According to Deputy Chief Auditor Greg Scates (who we contacted following the meeting), the proposed effective date for the re-proposed EQR standards is as follows:
- Annual audit: “For EQRs of audits, the Board intends to make a final standard effective, subject to SEC approval, for audits of fiscal years ending on or after December 15, 2009.
- Interim review: “For EQRs of interim financial information, the Board intends to make a final standard effective, subject to approval by the SEC, for fiscal years beginning after December 15, 2009.”
Different requirements for EQR of annual audit, interim review: The reproposed standard will differentiate the requirements for EQR of annual audits vs. interim (e.g. quarterly) reviews.
Replacement of ‘know or should have known’ with ‘due professional care’: The amended proposal removes the reference to what the reviewer ‘knows or should have known’ which was criticized in some comment letters as too high of a threshold that could trigger second-guessing; the amended proposal uses words in existing standards like ‘due professional care.’
Read more details from the PCAOB meeting here.