Investor Bulletin - Opportunity to Comment on Proposed Standard Addressing Core Auditing Principles and Responsibilities
April 17, 2023
The Public Company Accounting Oversight Board’s (PCAOB or “Board”) Office of Investor Advocate is alerting investors to the opportunity to comment on the PCAOB’s proposed auditing standard, AS 1000, General Responsibilities of the Auditor in Conducting an Audit.
This document represents the views of the PCAOB Office of the Investor Advocate and not necessarily those of other PCAOB staff or the Board. It is not a rule, policy, or statement of the Board.
On March 28, 2023, the Board issued a proposal for public comment to replace certain interim standards with a unified one that states the general principles and responsibilities of an auditor in conducting an audit under PCAOB standards. These general principles and responsibilities, which are foundational to the audit, include reasonable assurance, due professional care, professional skepticism, independence, competence, and professional judgment. The Board’s proposal states that auditors “have a fundamental obligation to protect investors through the preparation and issuance of informative, accurate, and independent auditor’s reports, and that obligation governs the auditor’s work under the standards of the PCAOB.” The Board’s proposal includes a paragraph within the standard to remind auditors that the audit primarily benefits investors and that a properly conducted audit enhances the confidence of investors and other market participants in the company’s financial statements. The proposal also includes amendments to standards that address other responsibilities fundamental to the conduct of an audit, such as the engagement partner’s responsibility to exercise due professional care related to supervision and review of the audit.
How to comment on the Board’s proposal
The Board is seeking public comment – including from investors – on its proposal. Comments are due by May 30, 2023. Comments can be sent by email (to [email protected]), by paper mail, or through the Board’s website: https://pcaobus.org/about/rules-rulemaking/rulemaking-dockets/docket-049-responsibilities-auditor-conducting-audit.
Additional information about the Board’s proposal
Read the full proposal HERE.
The Board’s proposal, if adopted, would:
- Retain the general principles of reasonable assurance, due professional care, professional skepticism, independence, competence, and professional judgment. These principles provide a foundation for the proper performance of the audit and lay the groundwork for audit procedures performed under PCAOB standards. The Board’s proposal streamlines and clarifies these general principles and responsibilities and provides a more logical presentation, to improve the useability of the standards and make them easier to read, understand, and apply.
- Reasonable assurance – Reasonable assurance describes the level of assurance auditors are required to obtain by performing audit procedures and evaluating audit evidence when expressing an opinion on the financial statements. Reasonable assurance refers to the auditor’s degree of satisfaction that the evidence obtained during the audit supports the financial statements. Reasonable assurance is not absolute assurance but is a high level of assurance.
- Due professional care – Due professional care concerns what the auditor does and how well the auditor does it. Due professional care means acting with reasonable care and diligence, exercising professional skepticism, acting with integrity, and complying with requirements that apply to PCAOB audits. Many professions, such as the medical and legal professions, have adopted the concept of due professional care.
- Professional skepticism – Professional skepticism is an especially important part of exercising due professional care in an audit. The proposed standard describes professional skepticism as an attitude that includes a questioning mind and a critical assessment of information relevant to the audit. Professional skepticism helps the auditor recognize circumstances that may cause the financial statements to be materially misstated.
- Clarify that the auditor’s responsibility to evaluate the fair presentation of a company’s financial statements is a broader concept than mere compliance with the applicable financial reporting framework (such as U.S. GAAP).
- Clarify the engagement partner’s responsibility to exercise due professional care related to supervision and review of the audit, including evaluating that significant findings or issues are appropriately addressed and determining that significant judgments and conclusions on which the auditor’s report is based are appropriate.
- Clarify that the engagement partner’s review of the audit procedures needs to take place prior to the report release date.
- Accelerate the documentation completion date by reducing the maximum period for the auditor to assemble a complete and final set of audit documentation from 45 days to 14 days in recognition of advances in electronic audit tools and the use of audit software that facilitate efficiencies in this area. A 14-day period between the report release date and the documentation completion date would also enable the Board to potentially begin the inspection process sooner after an audit’s completion leading to timelier inspection reports, which could enhance investor protection, ultimately enhancing investor confidence.
The Office of the Investor Advocate encourages investors as well as others to submit comments on this proposal.
Tips, referrals, and other information from the public are important sources for PCAOB enforcement and inspections staff and can help identify violations of law or PCAOB rules and may be submitted HERE.