Authored by Michelle Griswold.
On October 11, the Public Company Accounting Oversight Board (PCAOB) requested public comment on several proposed amendments to PCAOB standards designed to increase transparency of public company audits.
The PCAOB proposed an amendment, as a result of comments received in response to its July 28, 2009 concept release, that would require disclosure of the name of the engagement partner in audit reports for the most recent reporting period’s audit, but would not require the engagement partner’s signature on the report. The PCAOB believes that this will “enhanc[e] the engagement partner’s individual accountability and preserv[e] the firms responsibility for the audit,” and requests comments on the issue. The PCAOB also requests comments on whether the proposed rule may increase potential liability or create security risks for the engagement partner.
In connection with this proposed rule, the PCAOB proposed adding a requirement to the Annual Report form required to be filed with the PCAOB to disclose the name of the engagement partner for each audit report already required to be reported on the form. The PCAOB requests comments on this proposed amendment.
The PCAOB also proposed amendments that would require disclosure in the audit report regarding other independent public accounting firms and individuals or entities that are not employed by the auditor but took part in the most recent period’s audit, regardless of whether those individuals or entities are affiliated with the auditor.
Under these proposed amendments, if the auditor supervises or assumes responsibility for the other participants in the audit, the audit report would be required to disclose the names and locations of the other participants and the percentage of hours spent on the audit that are attributable to the other participants (excluding the engagement quality review (EQR) and certain other reviews). The audit report would also be required to include a statement that the auditor is responsible for the audits or procedures performed by the other participants and that the auditor has supervised and assumes responsibility for the other participants’ work. These disclosure requirements would not apply to certain participants in the audit, including individuals performing an EQR review, specialists in an unrelated field, and certain persons employed or engaged by the company. The disclosure requirements would also cover certain “off-shoring” arrangements, where portions of an audit are performed in offices in a different country than the auditor’s headquarters, but would not require disclosure of off-shored work performed by one of the auditor’s offices. The PCAOB requests comments on these proposed amendments, including their usefulness to investors, disclosure of off-shoring and other arrangements, disclosure of the percentage of hours worked by other participants, whether the disclosure would affect competition and the threshold for disclosure.
Under the proposed amendments, if responsibility for the audit is divided between the auditor and another accounting firm, the audit report would be required to include the name and location of the headquarters of the other accounting firm. The proposed amendments would also remove the requirement to obtain permission to disclose the name of the other accounting firm. The PCAOB requests comments on this proposed amendment.
The deadline to submit comments on these proposed amendments is January 9, 2012. To read the PCAOB release and the text of the proposed amendments, click here.