Heads Up — A summary of the November 12–13 meeting of the PCAOB’s Standing Advisory Group
At the November 12–13, 2015, PCAOB Standing Advisory Group (SAG) meeting, the PCAOB gave an update on recent developments, including an overview of its current and future standard-setting activities. In addition, SAG members participated in separate breakout sessions on audit quality indicators (AQIs) and emerging issues that could affect audits, auditors, or the PCAOB. The PCAOB staff also discussed the status of the Board’s project on using the work of specialists, and the SAG responded to a series of questions posed by PCAOB staff.
Recent PCAOB Developments
Chairman James Doty summarized the following recent PCAOB activities:
- Standard setting — The PCAOB continues to explore ways to improve the efficiency of its standard-setting process and is working closely with the SEC in this effort. Chairman Doty indicated that 2016 will be an active year for standard setting and that actions are expected in projects on auditor reporting, supervision of other auditors, accounting estimates, and specialists. He also indicated that in December 2015, a final rule related to the PCAOB’s transparency project is expected to be submitted for the Board’s approval. The rule will require the names of the audit partner and other participants in an audit of an issuer to be included in a form filed with the PCAOB.
- Inspections and enforcement — The PCAOB is nearing the end of its field work for the 2015 inspection cycle. Early indicators point to a slight decrease in the overall number of findings relative to 2014; however, not all firms improved, and some of the same findings recur year over year. Internal control over financial reporting continues to be a source of significant inspection findings and the subject of much discussion by auditors, preparers, and the regulatory community. In October 2015, the Board issued a general report summarizing observations related to implementation of its risk assessment standards for the 2012, 2013, and 2014 inspection cycles.
The PCAOB is also continuing its focus on broker-dealers and its 2015 inspections under the interim inspection program. The Board plans to use the information it gathers from interim inspections to develop a permanent inspection program for public comment and review by the SEC. In August 2015, the PCAOB issued a staff inspection brief that summarizes observations from its 2015 inspections. The brief is intended to help auditors, audit committees, investors, and preparers further their understanding of the inspection process and its results. Inspectors of audits of broker-dealers continue to identify many independence-related deficiencies, particularly among registered firms that do not also perform audits of issuers.
Chairman Doty noted that the PCAOB continues to build and strengthen its relationships with non–U.S. regulators and that many of its inspections are conducted in cooperation with such regulators. New agreements have been reached with Greece, Luxembourg, and Hungary, and the PCAOB is making progress with others. The Board is also continuing its efforts to reach agreements related to conducting inspections in China, although this process has proved more difficult than originally anticipated.
Several enforcement matters are approaching the final stages. Enforcement activity related to non–U.S. registered firms has stepped up, and such acceleration is expected to continue. The PCAOB also continues to coordinate closely with the SEC’s Division of Enforcement.
- Economic analysis — The PCAOB’s Center for Economic Analysis continues to be a critical component of the Board’s standard-setting and inspection processes. The Board is also increasing its use of data and economic analysis to improve the efficiency of the standard-setting process as well as its post-implementation analysis of new standards (e.g., this worked well in the Board’s review of Auditing Standard No. 7, Engagement Quality Review). Chairman Doty also discussed the Economic Research Fellowship program and indicated that five working papers have been prepared and are currently in academic peer review.
- Outreach to audit committees and small firms — The PCAOB continues to reach out to audit committees and their members regarding its work.
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