PCAOB Launches Post-Implementation Review Programby
A standard adopted by the Public Company Accounting Oversight Board (PCAOB) in 2009 will be the focus of the audit regulator’s first post-implementation review.
The standard is AS No. 7, Engagement Quality Review, now called AS 1220 under the PCAOB’s recent reorganization of its standards.
The goal of the post-implementation review program, which will be headed up by the PCAOB Center for Economic Analysis, is to look back at significant rulemakings, after a reasonable period of time has passed, to evaluate the overall effect of the rule or standard. This includes:
- Evaluating whether a rule or standard is accomplishing its intended purpose, as identified in the rulemaking release.
- Identifying, wherever possible, costs and benefits.
- Identifying unanticipated consequences – either positive or negative.
In connection with this evaluation, Center for Economic Analysis staff will also use the post-implementation review process to seek comment on whether rules and standards can be refined or improved.
A request for public comment on the Engagement Quality Review standard was released on April 6. Responses are due by July 5.
“The PCAOB is committed to furthering the use of economic analysis to better serve the investing public with well-informed regulatory decision-making,” PCAOB Chairman James Doty said in a written statement. “The launch of the post-implementation review program is an important step in achieving a holistic view of the economic impact of individual auditing standards and rules.”
The Engagement Quality Review standard, which had replaced an auditing standard that had been in effect since the 1970s, requires an engagement quality reviewer to evaluate the significant judgments made by the engagement team. When the standard was adopted, the PCAOB indicated that a “well-performed engagement quality review can serve as an important safeguard against erroneous or insufficiently supported audit opinions and, accordingly, can contribute to audit quality.”
The PCAOB expected the standard to provide a meaningful check on the work performed by the engagement team and increase the likelihood that a registered firm will catch significant engagement deficiencies before it issues its audit report.
“The Engagement Quality Review standard is ideal for the center’s first evaluation. The standard addresses a longstanding audit practice and has been in effect long enough to provide a sound basis for gauging practices before and after the new requirements,” said Luigi Zingales, founding director of the Center for Economic Analysis and a professor at the University of Chicago’s Booth School of Business.
In addition to analyzing both internal and external data, the Center for Economic Analysis is requesting public comment on the overall effect of the Engagement Quality Review standard, including the following questions:
- Has AS 7 accomplished its intended purpose? In particular, has the implementation of AS 7 increased the likelihood that a registered public accounting firm will detect significant engagement deficiencies before the audit report is issued? Do engagement quality reviews performed under AS 7 provide for a meaningful check on the audit work performed by the engagement team?
- Do users of financial statements believe that the implementation of AS 7 has affected the credibility of financial reporting?
- What have been auditors’ experiences with implementation of AS 7? How did the implementation of AS 7 change practice? Has the implementation of AS 7 given rise to any unintended consequences or changes?
- What have been preparers’ and audit committees’ experiences with the implementation of AS 7? How did the implementation of AS 7 change practice from their perspectives? Has the implementation of AS 7 given rise to any unintended consequences or changes?
- What have been the initial and recurring costs and benefits associated with the implementation of AS 7 from the perspectives of auditors, preparers, audit committee members, investors, and other users of financial statements?
- Could AS 7 be refined or improved to better achieve its intended purpose? If so, how?