Today, the Board will consider a staff recommendation to issue a concept release concerning audit confirmations. Confirmation is an audit process by which an auditor obtains and evaluates a direct communication from a knowledgeable third party in response to a request for information regarding account balances, transactions or other items that comprise a company's financial statements. Confirmations may be an important source of the evidence auditors obtain as part of an audit of a company's financial statements.
The Board is proposing this concept release to seek early public input on the potential direction of a standard-setting project that could result in amendments to the PCAOB’s standards on the use of audit confirmations. Public commentary on the concept release will assist the Board and staff in exploring whether improvements to the current requirements on designing and using confirmations, and on the confirmation process itself, could result in a more consistent and effective application of the standard. Comments from our recent Standing Advisory Group meeting supported our view that it may be appropriate to update the standards and explore ways to clarify expectations with respect to the confirmation process in order to achieve a more consistent and effective application of the standard.
Since confirmations were first required 70 years ago, they have been an important source of the evidence auditors obtain as part of an audit. Recent scandals have illustrated the continued value of this audit tool and the need for its effective use.
The existing standards were written over 15 years ago and there have been significant advances in technology and methods of communication since then. I believe it is appropriate for the Board to consider whether the current confirmation guidance continues to be relevant in conducting an effective and quality audit in today’s business environment.
The use of a concept release now will provide additional transparency to the public and allow for early input regarding the Board’s direction in considering a new standard. I believe that the use of a concept release, in appropriate cases, can enhance the PCAOB’s standard-setting process, and make our standard-setting process more robust.