June 2008

The Firm Structure and Finances Subcommittee of the Treasury Department’s Advisory Committee on the Auditing Profession (ACAP) has provided a new recommendation and discussion on standard setting, engagement partner signatures, transparency and litigation in the addendum to the Treasury Department’s Advisory Committee on the Auditing Profession (ACAP). Their “Addendum to VI. Firm Structure and Finances” was accepted at the June 3 ACAP meeting. ACAP’s earlier draft report (see sbr 4/08) had a comment deadline of June 13.

One specific recommendation made by the Subcommittee is: “Urge the PCAOB to undertake a standard‐setting initiative to consider improvements to the auditor’s reporting model.” The Subcommittee supports “improving the content of the auditor’s report beyond the current pass/fail model to include a more relevant discussion about the audit of the financial statements.”

Another recommendation is that the PCAOB require, beginning in 2010, that audit firms with 100 or more public company audit clients that the PCAOB Inspects produce a public annual report.

Other areas in the addendum say the ACAP is “considering recommending” changes. These include: mandating the engagement partner’s signature on the auditor’s report; beginning in 2011 making the larger firms file audited financial statements that it might make publicly available; and having Congress “provide federal courts with exclusive jurisdiction over some categories of claims, which presently may be brought in state courts against auditors, when such claims are related to audits of public company financial statements.”

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