PCAOB Solicits Additional Public Comment on Proposed New Requirements for Lead Auditor’s Use of Other Auditors

The Public Company Accounting Oversight Board today issued a supplemental request for comment on a proposal that would strengthen existing requirements and impose a more uniform approach to a lead auditor's use of other auditors.

The proposal spells out a lead auditor's responsibilities for planning, supervising, and evaluating the work of other auditors. Today's supplemental request for comment responds to some comments received asking for clarification to some provisions and modifications to others.

"In today's world, many audits, particularly for the largest companies, are multinational," said James R. Doty, PCAOB Chairman. "This proposal is intended to ensure the appropriate involvement of lead auditors in the work of other auditors."

In many audits, important audit work is performed by firms or individual auditors outside the firm issuing the audit report. The supplemental request for comment seeks additional input on certain revisions to the initial proposal on the use of these other auditors.

For example, in light of comments received, the PCAOB is proposing certain clarifications and refinements to the requirements for providing instructions to, and reviewing the work of, other auditors.

"We take public comments very seriously in the standard-setting process," said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards. "The clarifying changes and other revisions being proposed by the Board today would further improve the requirements for audits involving multiple firms."

PCAOB inspectors have observed that, in recent years, some firms have changed their approach to using other audit firms as the prevalence of audits involving other auditors has increased. Other firms, however, have not changed their approach.

The proposal is intended to increase the lead auditor's involvement in, and evaluation of, the work of other auditors and impose a uniform approach to the use of other auditors by:

  • Directing the lead auditor's supervisory responsibilities to the areas of greatest risk, consistent with PCAOB risk-assessment standards;
  • Making clear that, to act as lead auditor, an audit firm must itself audit a meaningful portion of the financial statements; and,
  • Requiring more explicit procedures to prompt the lead auditor to bolster its involvement in the work of other auditors, including enhanced communication and more robust evaluation of other auditors' qualifications and work.

The proposal includes a new standard, "Dividing Responsibility for the Audit with Another Accounting Firm" (AS 1206), and amendments to existing standards.

The PCAOB requests public comment on its supplemental request by November 15, 2017. Comments can be submitted through the proposal's rulemaking docket page.