The Public Company Accounting Oversight Board voted today to propose for public comment a new auditing standard on engagement quality review and a conforming amendment to the Board’s interim quality control requirements. This proposed standard would supersede the Board’s interim quality control standard, SECPS Requirements of Membership § 1000.08(f).
Section 103 of the Sarbanes-Oxley Act of 2002 directs the Board to include in its auditing standards a requirement that each registered public accounting firm "provide a concurring or second partner review and approval of [each] audit report (and other related information), and concurring approval in its issuance." The proposed standard, which would apply to all engagements performed in accordance with the standards of the PCAOB, is risk-based and designed to increase the likelihood that engagement deficiencies will be identified and corrected prior to the issuance of the auditor's report. The proposed standard provides a firmer framework for an engagement quality reviewer to objectively evaluate the significant judgments made by the engagement team and the conclusions reached in forming the overall conclusion on the engagement and in preparing the engagement report.
Based on advice from our Standing Advisory Group and observations from PCAOB inspections, the Board is seeking to improve the second partner review process through this proposal," said PCAOB Chairman Mark W. Olson. "By focusing the review on higher risks, the proposed standard would increase the likelihood of identifying and correcting deficiencies in the audit prior to the issuance of the auditor's report."
Tom Ray, PCAOB Chief Auditor and Director of Professional Standards, said, "The proposed standard significantly strengthens the Board's interim requirement and adds a more explicit focus on identifying and reviewing those areas of the engagement likely to contain higher risks."
The proposed standard has a 75-day comment period, ending May 12, 2008. Interested persons are encouraged to submit their views to the Board. The Board will carefully consider all comments received before taking final action on the proposal. Comments will be posted on the Board’s Web site, under Rulemaking Docket 25. Any new auditing standard and amendment to the interim auditing standard that is adopted will be submitted to the SEC for approval.
The text of the proposed auditing standard and related amendment are available on the Board’s Web site.