PCAOB Standards-Setting Update¹
By Gary L. Holstrum* and Douglas R. Carmichael**
Since the last update article in the Fall 2005 issue, there have been significant transitions in key leadership positions related to PCAOB standards-setting. For the standards-setting group (the Office of the Chief Auditor), the PCAOB has selected Thomas Ray as Chief Auditor and Director of Professional Standards. Tom succeeds Doug Carmichael, who decided to leave his position at the end of January, after almost three years at the helm of the professional standards group following his appointment as the first Chief Auditor of the PCAOB in April 2003. Dr. Carmichael is rejoining the faculty of Baruch College, City University of New York. Tom Ray had worked closely with Doug as Deputy Chief Auditor since June 2003. Prior to joining the PCAOB, Tom was a partner with KPMG. He has been active throughout his professional career in the application and development of U.S. and international auditing standards, including serving as the Director of Audit and Attest Standards at the AICPA.
There also has been a significant change for the Board of the PCAOB. Bill Gradison, one of the five original members of the Board, has been named the Acting Chairman, succeeding William McDonough, who decided to leave his post as of the end of November. Mr. McDonough recently took a position with Merrill Lynch. Prior to joining the PCAOB, Mr. Gradison held elective office for more than 30 years, including 18 years in Congress, after which he headed a Washington-based trade association for six years and served as senior counselor at the Washington law firm Patton Boggs. Bill has a strong interest in research and education, having received an MBA and doctorate from the Harvard Business School, where he also served on its finance faculty.
Finally, significant transitions in key positions have occurred at the SEC that will affect the PCAOB due to the close working relationship between these two organizations. The SEC, for example, must approve PCAOB standards before they become effective. The SEC also is undergoing significant transition in key positions. SEC Chief Accountant, Don Nicolaisen, decided to leave his position as of the end of November, and Scott Taub, former Deputy Chief Accountant, has been named Acting Chief Accountant. Andy Bailey, SEC Deputy Chief Accountant primarily responsible for auditing and interfacing with the PCAOB, decided to leave his position in December, and the SEC has not yet named a replacement.
PCAOB Standards-Setting Projects and Related Research Synthesis Projects.
The Auditing Section has formed nine teams of researchers to develop a synthesis of research relevant to each of the following nine 2006 PCAOB standards-setting projects (Note hyperlinks to related PCAOB briefing papers):
- Auditor Risk Assessments
Research Team Leader: Dana Hermanson (firstname.lastname@example.org)
- Audits of Fair Value
Research Team Leader: Roger Martin (email@example.com)
- Audit Confirmations
Research Team Leader: Randy Elder (firstname.lastname@example.org)
- Audit Firm Quality Control
Research Team Leader: Jean Bedard (email@example.com)
- Audit Reporting Model
Research Team Leader: Bryan Church (firstname.lastname@example.org)
- Auditing Related Party Transactions
Research Team Leader: Elaine Henry (email@example.com)
- Communications with Audit Committees
Research Team Leader: Arnie Wright (Wrightar@bc.edu)
- Engagement Quality Review
Research Team Leader: Arnie Schneider (firstname.lastname@example.org)
- Financial Fraud
Research Team Leader: Chris Hogan (email@example.com)
The Risk Assessment and Fair Value teams were formed about a year ago. The Risk Assessment Team has completed its project and its research synthesis is forthcoming in Accounting Horizons. The Fair Value Team is nearing completion of its project. Both of these teams made presentations at the Section's Mid-Year Meeting in January. The other seven teams were formed in November 2005 with the expectation that they will complete their research synthesis projects by March or April 2006.
Each team will address the issues raised in the related PCAOB briefing papers and will consult with PCAOB staff who lead the standards-setting projects. The resulting research syntheses should be helpful to the PCAOB in formulating appropriate standards and also to accounting and auditing researchers, educators, auditors, and students.
We encourage readers who have performed research and completed working papers on research related to any of these projects to contact the leader of the related research team and forward a copy of the working paper (See team leader email addresses above).
Standing Advisory Group—February Meeting.
The agenda for the February meeting of the PCAOB Standing Advisory Group includes:
As with all meetings of the Standing Advisory Group, the agenda and briefing papers for this meeting, as well as the meeting webcast, can be found under Standards on the PCAOB Web site at www.pcaobus.org .
PCAOB Report on Initial Implementation of AS No. 2 concerning Audits of Internal Control over Financial Reporting.
On November 30, 2005, the PCAOB issued a report discussing issues identified in the course of the Board's monitoring of the implementation of Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements ("AS 2"). The Board's monitoring was based largely, but not exclusively, on information from PCAOB inspections and focused on whether registered firm's audit methodologies and the execution of those methodologies resulted in audits of internal control that are effective and efficient. Researchers, educators, students, auditors, and others should find this report highly informative and useful.
¹Note the hyperlinks to the PCAOB Web site (www.pcaobus.org) and to the Auditing Section Web site. A convenient history of PCAOB standards-setting activity and related briefing papers are available through the hyperlinked previous PCAOB Standards-Setting Update articles in the Spring 2005, Summer 2005, Fall 2005 issues of The Auditor's Report.
*Gary Holstrum is Associate Chief Auditor and Director of Research.
**Douglas Carmichael is PCAOB Chief Auditor and Director of Professional Standards through January 2006. He is succeeded by Tom Ray, previously Deputy Chief Auditor.
The views expressed in this article are those of the authors and not necessarily those of the Board, individual Board members, or other PCAOB staff. Responses to the article or related research may be emailed to firstname.lastname@example.org.