PCAOB Staff Report Highlights Existing Auditor Responsibilities Related to Illegal Acts

Washington, DC, Nov. 12, 2024

Today, the PCAOB released a new staff Spotlight publication, “Auditor Responsibilities for Detecting, Evaluating, and Making Communications About Illegal Acts.”

PCAOB staff periodically provides reminders to auditors on applying specific PCAOB requirements, including relevant examples. Staff outreach performed in connection with the Board’s proposal on the auditor’s responsibility with respect to a company’s noncompliance with laws and regulations indicated that an overview of existing audit requirements regarding detecting, evaluating, and making communications about illegal acts by a company in an audit of financial statements may be beneficial.

Under federal securities laws, auditors have a longstanding responsibility to:

  1. Detect illegal acts;
  2. Evaluate information indicating that an illegal act has or may have occurred;
  3. Determine whether it is likely that an illegal act has occurred, and, if so, to consider the possible effect of the illegal act on the financial statements of the company; and
  4. Make appropriate communications about illegal acts – unless “clearly inconsequential” – to management, the audit committee, and possibly the U.S. Securities and Exchange Commission.

PCAOB standards include similar requirements. These responsibilities also inform the auditor’s obligation to plan and perform the audit to obtain reasonable assurance that the company’s financial statements are free of material misstatement, whether due to error or fraud.

This staff publication focuses auditors on relevant considerations when performing procedures to detect, evaluate, and make communications about illegal acts by a company under audit.

For more resources and insights from the PCAOB, visit the Staff Publications pages.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.

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