PCAOB Releases Staff Guidance on Economic Analysis in PCAOB Standard-Setting

The Public Company Accounting Oversight Board today publicly released its Staff Guidance on Economic Analysis in PCAOB Standard Setting.

"The Guidance builds on the PCAOB's existing rulemaking process by establishing an analytical framework for staff to evaluate the economic implications of standard-setting projects that are presented for Board consideration," said PCAOB Chairman James R. Doty.

The Guidance was prepared by PCAOB staff economists and the Office of the General Counsel. The Chairman has directed the staff to follow the Guidance.

"The Guidance should give those who are interested in the PCAOB's standard setting a better understanding of the analysis that staff plan to conduct to ensure effective and efficient rulemaking. The Guidance helps us pursue investor protection with appropriate consideration of regulatory burden," Chairman Doty said.

The Guidance sets forth four main elements of economic analysis for setting auditing and related professional practice standards:

• describing the need for a rule
• developing a baseline for measuring the effects of a rule
• considering reasonable alternatives to the rule
• analyzing the economic impacts of the rule (and alternatives to the rule), including the benefits and costs

The PCAOB last year established a Center for Economic Analysis, headed by economist Luigi Zingales, the Robert C. McCormack Professor of Entrepreneurship and Finance and the David G. Booth Faculty Fellow at the University of Chicago Booth School of Business, to promote economic research relating to the role of the audit in capital formation and investor protection.

"The Guidance on economic analysis reflects the PCAOB's commitment to the use of economic analysis in its rulemaking," said PCAOB Chief Auditor Martin F. Baumann. "The Offices of the Chief Auditor and Research and Analysis have fortified our resources with economists to conduct more rigorous economic analysis. In addition, I look forward to insights from new research on the role of auditing in our financial markets, developed by the PCAOB Center for Economic Analysis."