PCAOB Standards Update
By Martin F. Baumann, Gregory Scates and Dima Andriyenko**
Prepared for The Auditor's Report (Summer 2009)
Introduction
This update addresses selected PCAOB developments since the Spring 2009 Update that are likely to be of interest to accounting and auditing researchers, educators, and students. The developments discussed include engagement quality review, audit confirmations, and a new staff audit practice alert. Additionally, this update includes information about the 2009 PCAOB Symposium, recent meeting of the PCAOB Standing Advisory Group, and change in leadership at the PCAOB Office of the Chief Auditor.
May 2009
2009 PCAOB Symposium: Approximately 60 auditing researchers and educators, 35 people from the PCAOB, and representatives from the SEC, FASB, and GAO, participated in the 2009 PCAOB Symposium on April 30 – May 1 in Washington, DC. The Symposium, which was jointly planned by representatives of the Auditing Section and the PCAOB, included the following panel discussions:
- PCAOB Inspections of Firms
- PCAOB Standards-Setting Activities
- Current Economic Crisis and the Profession
- Recent PCAOB Staff Practice Alerts
- Update on PCAOB Enforcement Activity, and
- Future Academic Research Issues.
April 2009
Staff Audit Practice Alert No. 4, Auditor Considerations Regarding Fair Value Measurements, Disclosures, and Other-Than-Temporary Impairments: On April 21, 2009, the PCAOB issued a Staff Audit Practice Alert to inform auditors of public companies about potential implications on reviews of interim financial information and annual audits of the following three recently-issued Financial Accounting Standards Board Staff Positions ("FSPs"):
- FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
- FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments
- FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments
The staff practice alert addresses the following topics:
- Reviews of interim financial information
- Audits of financial statements, including integrated audits
- Disclosures, and
- Auditor reporting considerations.
The alert also reminds auditors that some PCAOB standards include descriptions of accounting requirements that are no longer current. The accounting standards set by the FASB are recognized by the SEC as generally accepted. Auditors should look to those standards and to the requirements of the SEC, rather than the standards of the PCAOB, for current accounting requirements and disregard descriptions of accounting requirements in PCAOB standards that are inconsistent with the FSPs.
The PCAOB has a project on its standards-setting agenda to address the auditing standards related to auditing accounting estimates and auditing fair value measurements. In connection with this project, the PCAOB is planning to remove descriptions of accounting requirements from these standards. In general, as the PCAOB replaces or substantively revises its interim standards, it will continue to remove descriptions of accounting requirements from those auditing standards.
Concept Release on Audit Confirmations: On April 14, 2009, the PCAOB issued for public comment a concept release on possible revisions to the Board's current standard on audit confirmations, AU sec. 330, The Confirmation Process.
Confirmation is an audit process by which an auditor obtains and evaluates a direct communication from a knowledgeable third party in response to a request for information regarding account balances, transactions or other items that comprise a company's financial statements. Confirmations may be an important source of the evidence auditors obtain as part of an audit of a public company's financial statements.
The Board issued this concept release to seek public comment on the potential direction of a standard-setting project that could result in an amendment to, or a new auditing standard on, the Board's current standard on audit confirmations. The comment period for the proposed standard ended May 29, 2009, and the comments are posted on the Board’s Web site, under Rulemaking Docket 028.
Change of Leadership at the PCAOB Office of the Chief Auditor: On April 14, 2009, the PCAOB announced that it had named Martin F. Baumann as Chief Auditor and Director of Professional Standards. The principal responsibility of the Chief Auditor is to advise the Board on the establishment of auditing and related professional standards.
Mr. Baumann joined the PCAOB in 2006 and was Director of the Office of Research and Analysis. Prior to joining the PCAOB, Mr. Baumann had a 33-year career at PricewaterhouseCoopers where he served as Deputy Chairman of the World Financial Services Practice, Global Banking Leader, and partner-in-charge of the audits of some of PwC’s largest clients. In 2003, he was asked to join Freddie Mac, after it announced financial reporting problems, to lead the company’s restatement and related improvements in its financial reporting and disclosure practices.
Mr. Baumann was named Chief Auditor following the March 7, 2009, departure of Thomas Ray, who joined the PCAOB in 2003.
Meeting of the PCAOB Standing Advisory Group: The PCAOB Standing Advisory Group (“SAG”) held their meeting on April 2, 2009, from 8:30 a.m. to 5:30 p.m. at the National Association of Home Builders, 1201 15th Street NW, Washington, DC.
The April 2 meeting included a discussion on audit confirmations and a discussion on the Board's proposed auditing standard on engagement quality review. In addition, the advisory group engaged in a panel discussion regarding the auditor's consideration of an entity's ability to continue as a going concern. The Board also received input from the advisory group in a discussion on emerging issues. The agenda for this meeting and the briefing papers can be found at the following link: PCAOB Standing Advisory Group Meeting.
The Board has scheduled another Standing Advisory Group meeting for October 14-15, 2009. The agenda and meeting logistics will be announced closer to the meeting date. The SAG meetings are open to the public and are Webcast on the Board's Web site.
About the SAG: The SAG advises the Board on the establishment of auditing and related professional practice standards. The SAG currently includes 33 highly qualified persons representing the auditing profession, public companies, investors, and others. The Board also has granted six organizations observer status with speaking rights at all SAG meetings: the ASB, DOL, FASB, GAO, IAASB, and SEC. The SAG meets in person approximately two to three times per year.
March 2009
Proposed Auditing Standard on Engagement Quality Review: On March 4, 2009, the PCAOB reproposed for comment an auditing standard on Engagement Quality Review (EQR). The proposal would supersede the Board’s quality control standard, SECPS Requirements of Membership, Section 1000.08(f).
The proposed standard would apply to all audit engagements and engagements to review interim financial information conducted pursuant to the standards of the PCAOB. The proposed EQR standard provides a framework for an engagement quality reviewer to objectively evaluate the significant judgments made by the engagement team and the conclusions reached in forming an overall conclusion on the engagement.
The Board first proposed a new standard on EQR on February 26, 2008. Since then, the Board had made extensive changes to the original proposal and was seeking comment on the revised EQR standard. The comment period for the proposed standard ended April 20, 2009, and the comments are posted on the Board’s Web site, under Rulemaking Docket 025.
** Martin F. Baumann is PCAOB Chief Auditor and Director of Professional Standards.
Gregory Scates is PCAOB Deputy Chief Auditor.
Dima Andriyenko is PCAOB Associate Chief Auditor
Note the hyperlinks to various items on 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 Update articles in the Spring 2005, Summer 2005, Fall 2005, Spring 2006, Summer 2006, Fall 2006, Spring 2007, Summer 2007, Fall 2007, Spring 2008, Summer 2008, Fall 2008, and Spring 2009 Update issues of The Auditor's Report. The views expressed in this article are those of the authors and not necessarily those of the PCAOB, individual Board members, or other PCAOB staff. Responses to the article or related research may be emailed to scatesg@pcaobus.org.
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