PCAOB Provides More Details on Form AP Reportingby
The Public Company Accounting Oversight Board (PCAOB) on Jan. 26 issued new staff guidance on Form AP, the document registered public accounting firms are now required to use to disclose the names of the engagement partner and other accounting firms that participate in an audit.
The guidance, Auditor Reporting of Certain Audit ParticipantsandRelated Voluntary Audit Report Disclosure Under AS 3101, Reports on Audited Financial Statements, indicates that audit firms must consistently report the engagement partner’s name on each Form AP filed with the PCAOB.
The guidance notes the following information must be provided about the engagement partner on the most recent period’s audit:
1. Name. The full name (first and last name, middle name, and suffix, if any) should be reported consistently on Form AP unless the engagement partner has changed his or her name. In that case, all forms filed subsequent to the name change are required to consistently use the new name.
2. Partner ID. The Partner ID is a unique 10-digit identification number that the firm assigns to each partner who serves as engagement partner on issuer audits. The firm must also provide any Partner IDs previously used for the engagement partner.
The Partner ID begins with the firm’s Firm ID – a unique five-digit identifier based on the number assigned by the PCAOB – followed by a series of five numbers assigned by the firm. The five numbers are unique to the engagement partner.
“For example, the unique series element could be sequential numbers, numbers based on the year the partner was admitted into the partnership, or random numbers,” the guidance states.
If an engagement partner is no longer affiliated with a firm, the Partner ID must be retired and not reassigned.
In addition, an engagement partner now working with a new firm must have that firm assign a new ID. The firm is required to report the new Partner ID and any previous IDs associated with the engagement partner on Form AP.
3. Dual-dated audit reports. When an audit report is reissued and dual-dated, a new Form AP must be filed. And if the engagement partner has changed since the original report was issued, Form AP will indicate the name of the original engagement partner and the one responsible for the dual-dated report.
Here’s a snapshot of other identification requirements for Form AP that the new guidance provides:
Referred-to auditors. When responsibility for the audit is divided by the principal auditor with one or more firms, the principal auditor must identify the referred-to auditors on Form AP with their Firm ID and to what degree they participated in the audit. The referred-to auditor isn’t required to file Form AP.
Mutual funds with multiple series of the same issuer. When multiple audit opinions are provided on the same day for a mutual fund with more than one series (either within a single audit report or in multiple audit reports), the firm may file one Form AP for all of the opinions, provided that all of the information on Form AP is identical for each series except for the series identifier. But if any information varies, a separate Form AP must be filed.
No filing required. These situations include attestation engagements, interim review reports, and nonissuer audits done according to PCAOB standards.
The guidance is in keeping with the need for increased transparency that PCAOB Chairman James Doty addressed in December 2015 when the new rules were adopted. Auditing, he said, “is still a business about reputation. The firm name is clearly part of that reputation. But the names of the individuals entrusted with the franchise have been lost in the sea of expansion.”
Because of that, Doty said the profession is “an outlier” among other financial reporting players that disclose the names of corporate board members, CEOs, CFOs, and other senior managers.
“Based on nearly 13 years of experience, PCAOB inspections have revealed that, even within a single firm, and notwithstanding firm-wide or network-wide quality control systems, the quality of individual audit engagements varies,” Doty said. “There are numerous factors required to achieve a high-quality audit, but the role of the engagement partner in promoting quality, or allowing it to be compromised, is of singular importance to the ultimate reliability of the audit.”
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.