The Public Company Accounting Oversight Board (PCAOB) submitted a draft of changes for its Auditing Standard 2 (AS2) to the Securities and Exchange Commission (SEC) back in September. AS2 has been criticized for its conservative use by auditors, according to CFO.com. The SEC and participants in Sarbanes-Oxley (SOX) roundtables have been seeking revisions.
âWe've received a lot of feedback that the number of auditors are hesitant to implement the concepts and direction from [the May 2005 guidance] for fear they would violate the standard itself,â said Thomas Ray, PCAOB's chief auditor and director of professional standards.
AS2 is intended to guide accountants through the process of auditing a company's internal controls per SOX Section 404. CFO.com also reports that companies using AS2 as a default framework found that they had done more work than necessary. The standard has been the blame for overly aggressive and costly audits to many companies and accounting industry professionals.
Thomas Ray told CFO.com that there has been confusion with the initial definitions especially when evaluating the severity of a weakness. Clarification of phrases such as, âmaterial weaknessesâ and âsignificant deficiencyâ are possibly in the works. One situation found with the phrase âmore than a likelihoodâ seems to affect auditors' focus toward minor details instead of seeking âreasonable possibility.â
Amendments to AS2 are a top priority for the PCAOB, according to FierceSarbox.com. Many feel that any changes are coming too late but proceeding in the right direction.
Ray told CFO.com, âWe want to encourage more use of others' work,â as well as allowing for the use of previous experience. âNow, each year's audit must stand on its own but that does not mean you disregard everything you know about the company's internal controls.â Ray said that amendments to AS2 would be introduced âsoonâ, but cautioned, âDon't wait for us to amend AS2 to make your audits more efficient.â