The Public Company Accounting Oversight Board has reproposed for public comment amendments to PCAOB auditing standards that would improve the transparency of audits through the disclosure in the auditor's report of the engagement partner and certain other participants in the audit.
The auditor's report presently does not contain information about who served in the role of engagement partner, or whether the firm issuing the report performed all of the audit work. Generally, audit reports today only disclose the name of the firm that issued the opinion.
Other than the disclosure obligations, the reproposed amendments would not change the performance obligations of the auditor in conducting the audit.
Disclosure of the Name of the Engagement Partner
The reproposed amendments would require the disclosure in the auditor's report of the name of the engagement partner for the most recent period.
The reproposed amendments no longer include a requirement for audit firms to disclose the name of the engagement partner in the Form 2 annual report they are required to file with the PCAOB.
If adopted, the reproposal would amend: (1) AU sec. 508, Reports on Audited Financial Statements, (2) AU sec. 9508, Reports on Audited Financial Statements: Auditing Interpretations of Section 508, (3) AU sec. 543, Part of Audit Performed by Other Independent Auditors, (4) Auditing Standard No. 1, References in Auditors' Reports to the Standards of the Public Company Accounting Oversight Board, and (5) Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements.
Disclosure About Certain Other Participants in the Audit
The second part of the Board's reproposal would require the inclusion of information about certain other participants in the audit. In many audit engagements, especially audits of companies with multiple locations and international operations, the audit firm issuing the opinion may perform only a portion of the audit.
The information to be disclosed would be:
- With respect to another independent public accounting firm(s), the name of the other firm(s); with respect to other persons not employed by the auditor, the phrase "persons not employed by our firm," instead of identifying the persons by name. "Persons" mean any natural person or any business, legal or governmental entity or association.
- The location of other participants in the audit (the country of the firm's headquarters' office location and the country of residence or headquarters' office location for other persons).
- The percentage of the total hours attributable to the audits or audit procedures performed by the other participants in the most recent period's audit.
Revisions to the reproposed amendments include:
- Raising the disclosure threshold for other participants in the audit from 3 percent of the total audit hours in the originally proposed amendments to 5 percent of the total audit hours.
- Allowing for the disclosure to be stated within a range of percentages or as a single number, which was required in the originally proposed amendments.
- No longer requiring disclosure in the auditor's report of the names of other persons that are not employed by the auditor when referring to persons or entities other than a public accounting firm; instead, such persons are to be disclosed as "persons not employed by our firm."
- The Board began in 2005 to seek advice on and explore a variety of alternatives to make the auditor's report more informative, including by requiring disclosure of the name of the engagement partner.
- In addition to the Board's efforts, in 2008 the U.S. Department of the Treasury's Advisory Committee on the Auditing Profession issued its final report recommending, among other things, that the PCAOB "undertake a standard-setting initiative to consider mandating the engagement partner's signature on the audit report."
- In July 2009, the Board issued a Concept Release on requiring the engagement partner to sign his or her own name to the audit report.
- In October 2011, the Board issued a proposal that, among other things, would have required disclosure of the name of the engagement partner without requiring a signature and also required disclosure of other participants in the audit. Related information is available on the PCAOB website.