SEC Publishes Notice of PCAOB Standard on Wording in Audit Reports

The Securities and Exchange Commission this week published a notice soliciting public comments on Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 1, entitled "References in Auditors' Reports to the Standards of the Public Company Accounting Oversight Board." If approved by the Commission, Auditing Standard No. 1 would require that an auditor's report issued in connection with any engagement performed in accordance with the auditing and related professional practice standards of the PCAOB state that the engagement was performed in accordance with "the standards of the Public Company Accounting Oversight Board (United States)." As proposed, Auditing Standard No. 1 states that upon its adoption "a reference to generally accepted auditing standards in auditors' reports is no longer appropriate or necessary."

Certain provisions of the federal securities laws, Commission rules and interpretations, and staff guidance include references to generally accepted auditing standards (GAAS). Given the possible confusion between these references to GAAS and the requirements of Auditing Standard No. 1, the Commission anticipates that, if it approves Auditing Standard No. 1, it would issue an interpretive release that would clarify the Commission's position regarding references in the securities laws, Commission rules and interpretations and staff guidance to GAAS, or to specific standards under GAAS, as they relate to issuers. The Commission would issue the interpretive release simultaneously with the approval of the PCAOB standard.

The interpretive release also would address (1) the requirements to follow Commission rules or other applicable laws, rules or regulations even if the audit report references that the audit was performed in accordance with PCAOB standards, and (2) whether a prior report previously filed with the Commission and incorporated by reference into a new filing with the Commission would need to be revised to refer to the standards of the PCAOB.

Comments on whether the Commission should approve Auditing Standard No. 1 may be submitted to the Commission for a period of 21 days following the publication of the notice in the Federal Register.

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