On June 10, 2014, the PCAOB adopted Auditing Standard No. 18, Related Parties, for audits of fiscal years beginning on or after December 15, 2014, and this standard was subsequently approved by the SEC on October 21, 2014. With related parties now in the rearview mirror, we’re now left to wonder what’s up next for the organization charged with overseeing the audits of public companies.
On September 30, 2014, the Office of the Chief Auditor of the PCAOB issued a Standard Setting Agenda that offers a glimpse into the PCAOB’s current priorities and projects. The agenda details projects that are in process or being contemplated, actions taken or planned action under consideration, and potential timing. The projects where action has been taken or is expected to be taken between October 2014 and March 2015 are summarized as follows:
Auditing Accounting Estimates, Including Fair Value Measurements and Related Disclosures – The PCAOB is seeking comments on alternative approaches to address issues around the auditing of accounting estimates and fair value measures. This issue is in response to audit deficiencies noted by the PCAOB, changes in financial reporting frameworks and methods used to develop estimates, and auditor concerns with the existing guidance. A staff consultation paper was issued on August 19, 2014 with a comment period ending November 3, 2014.
Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits – A re-proposed rule was issued on December 4, 2013 with a comment period ending March 17, 2014. The re-proposed rule would amend existing standards to require the audit report to disclose the engagement partner’s name as well as information regarding other independent public accounting firms and individuals who assisted in the audit. The PCAOB is in the process of developing a supplemental request for comment that incorporates the previous comments received.
Auditor’s Reporting Model – On August 13, 2013, the PCAOB issued a proposed rule that would establish two new standards significantly enhancing the disclosures within the auditor’s report and increasing the auditor’s responsibilities for “other information” included in the company’s annual report. The PCAOB is in the process of reviewing comments received and anticipates a re-proposal of the rule during 2015.
Supervision of Other Auditors and Multi-location Audit Engagements – With the increasingly global nature of today’s economy, auditors are more frequently relying on the work of other auditors. As a result, the PCAOB is considering changes to existing standards that would enhance the auditor’s responsibilities for the planning and supervision of other auditors involved in the audit. The PCAOB is currently working on a proposed standard on this matter.
Use of Specialists – As noted above, the auditing of accounting estimates and fair value measurements is currently a focus point for the PCAOB. Specialists are often used to address high-risk estimates included in the financial statements. As a result, the auditing procedures associated with the use of specialists are also crucial. The PCAOB plans to issue a staff consultation paper seeking comments on this topic.
Framework for Reorganization of PCAOB Auditing Standards – On March 26, 2013, the PCAOB issued a proposed rule that sought to reorganize the PCAOB’s existing interim standards and the PCAOB’s audit standards. A supplemental request for comment was issued on May 7, 2014 with a comment period ending on July 8, 2014. The PCAOB is currently drafting a final version for the Board’s adoption.
Going Concern – The PCAOB is contemplating revisions to the current standards that address the auditor’s evaluation of an entity’s ability to continue as a going concern. The PCAOB’s consideration of this topic is closely tied to the FASB’s issuance of Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern, which provides guidance to management on evaluating the entity’s ability to continue as a going concern and the related footnote disclosures. The PCAOB anticipates issuing a staff consultation paper on this topic by the end of 2014.
If you have questions or want to discuss the PCAOB standard setting agenda, contact a member of our team that serves public companies.
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