Statement in Support of the Issuance of a Supplemental Request for Comment on Proposed Amendments to Auditing Standards Related to the Auditor’s Supervision of Other Auditors
I am very pleased to support the staff’s recommendation that the Board issue a further supplemental request for comment on proposed amendments related to the auditor’s supervision of other auditors.
As speakers today have noted, the first proposal in this project was several years ago, after which the Board issued a supplemental request for comment on certain revisions to the proposal. Today’s release seeks further comment on targeted revisions that further refine and clarify the previously proposed amendments. This is a significant project, involving a substantial update of the PCAOB’s standards in a very important area. I believe the proposed amendments, if adopted, will improve how auditors plan and supervise audits that involve other auditors; which in turn will enhance audit quality and protect the interests of investors and serve the public interest.
I join my fellow board members in expressing appreciation for the hard work of the staff in preparing the proposed amendments that the Board is considering today. I would like to add my thanks to the staff in the Office of the Chief Auditor, as well as in the Office of Economic and Risk Analysis, the Division of Registration and Inspections, the Division of Enforcement and Investigations, and the Office of the General Counsel. I would also like to thank the SEC staff for their support in advancing this project.
I commend our Office of Chief Auditor for their engagement with our staff in the Division of Registration and Inspections. Our observations from targeted inspections of multi-location audits and reviews of firm methodologies and practice aids – as well as observations from other inspections and from our enforcement program – have helped to inform the decisions made in this project. Information about what we are seeing in practice has benefited our understanding of the challenges and diverse range of facts and circumstances that can arise in audits involving other auditors. Even in the time since the initial proposal on this project, there has been increasing globalization and significant developments in technology – which affect not only financial reporting and related controls, but also how audits are being performed. The pace of change and the related effects on financial reporting and performance of audits will only accelerate going forward. I am pleased that the Board is using this supplemental request to provide one more opportunity for stakeholders to provide their comments on the proposal.
There are some aspects of the proposed amendments that I would like to briefly highlight – usability, clarity, and scalability.
- First, usability. The proposed amendments have been re-organized so that important provisions that were previously included in appendices to the planning and supervision standards have now been integrated into the bodies of those standards. This approach enables the amendments to be read in the context of the more general or overarching requirements to which they pertain. This change, without by itself changing the meaning of the amendments, should make the standards easier to follow and implement. I therefore believe that this approach will make the Board’s auditing standards more usable.
- Second, clarity. Many of the revisions to the proposed amendments in today’s release clarify the proposed requirements, and the accompanying release includes useful background discussion. Revisions to proposed requirements – such as those pertaining to audits that involve multiple tiers of other auditors and therefore “layers” of planning and supervision – attempt to respond to what we heard from commenters, as well as what we have learned through our oversight activities about of the realities of current practice.
- Finally, scalability. In revising its standards, the Board is careful to take into account the need for scalability, including that its standards will be applied to audits of differing sizes and complexity, and by firms with diverse natures and circumstances. In order to address scalability, the proposed amendments are therefore designed as risk-based, and intended to be adapted based on the facts and circumstances.
I encourage commenters to read the proposed amendments and the related discussion in the accompanying release and provide input on the aspects I have highlighted. While it is of course impossible to predict the future, I encourage commenters to consider how the proposed amendments might be applied and as appropriate, adapted to the evolving environment and to the diverse situations that are encountered today, and that might be encountered going forward. I think it’s important for our staff and the Board to hear about situations where the proposed requirements might pose particular practical or other challenges. This kind of commentary enables the Board to consider whether revisions might be necessary to further clarify or explain requirements so that they can achieve their intended outcomes, which should facilitate more effective and consistent implementation by auditors. In this way, I believe that our standards will be more effective in enhancing audit quality and protecting the interests of investors.
In closing, let me add that, although I will no longer be on the Board when the comment letters are submitted on this request for comment, I look forward to observing the continued progress, and I hope that the next Board will support bringing this important initiative to completion in a timely and expeditious manner.