By Edith Orenstein, FEI Financial Reporting Blog - Members of the PCAOB’s Standing Advisory Group (SAG) warned during their Feb. 27, 2008 meeting that a Professional Judgment Framework (PJF) recommended by the SEC Advisory Committee on Improvements to Financial Reporting (CiFIR) could become a litigation trap that could lead to enhanced, not reduced liability. NOTE: As we previously reported, the SEC posted a Request for Comments on the recommendations in CiFIR's Progress Report; the Request for Comments was published in the Federal Register today (Feb. 28) and the comment deadline is March 31.
Some SAG members observed that the PJF represented common sense principles which could raise the bar of financial reporting by requiring express consideration of applicable accounting standards, alternatives, and investor needs, in addition to requiring related documentation. However, some SAG representatives questioned the extent to which the PJF would enhance the quality of financial reporting, particularly when weighed against potential related litigation risk.
Other matters discussed at the PCAOB SAG meeting included whether the PCAOB should promulgate new rules on audit supervision similar to the broker-dealer supervision model of the SEC, and related language in Section 105 in the Sarbanes-Oxley Act empowering the PCAOB to discipline an audit firm and associated persons for failure to supervise personnel, and Global Quality Control Practices of international audit firm networks.
Further details on the Feb. 27 SAG meeting can be found here.
Posted by Edith Orenstein, FEI Financial Reporting Blog, Feb. 28, 2008 9:27 p.m.