PCAOB Chair Addresses CPT/Baruch Conference

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The Public Company Accounting Oversight Board has reaffirmed its strategic plan, which commits the Board to transforming itself “into a trusted leader that promotes high quality auditing through forward-looking, responsive, and innovative oversight,” PCAOB Chair William D. Duhnke told Baruch College’s 14th Annual Audit Conference, cosponsored by the NASBA Center for the Public Trust, on December 3 in New York City. Key to the PCAOB’s shift to a more preventive regulatory approach is ensuring audit firms have a strong system of quality control. Chair Duhnke announced that the Board is committed to revising the current quality control standards and will hold an open meeting in December on potential changes to those standards to be included in a forthcoming concept release. He explained “future revisions to the PCAOB’s quality control standards should be built on an integrated risk-based framework similar to the [International Auditing and Assurance Standards Board’s] proposed ISQM 1.” Currently the PCAOB uses the quality control standards developed in 1997 by the AICPA.

Chair Duhnke reported the PCAOB has heard its current auditing standards do not impede or encourage the use of innovative technologies. While the largest firms are invested in technology-enabled tools and techniques, the mid-size and small firms continue to use more traditional tools and techniques. “To the extent we consider future changes to our standards, we will need to take account of the distinctions in the marketplace,” Mr. Duhnke told the conference. “We will continue to monitor this area aggressively, with an intent to stay ahead of the curve.”

Pressure is on standard setters to avoid unnecessary divergence of standards, IAASB Chair Tom Seidenstein explained to the conference. “We are in process of approving our strategic plan to make sure public interest is at the core of all we do,” he stated. He noted both the United Kingdom and Australia, which use the IAASB standards, are under scrutiny now by their regulatory regimes. The standard-setting process has not changed much in decades, Mr. Seidenstein observed, and he hopes to speed it up to make it more agile and responsive. The IAASB is currently considering the feedback received on their consultative document on audits of less complex entities, which he said includes the mom-and-pop stores that make up 85 percent of the economy. Does there need to be more guidance for auditing these entities or do the standards have to be scalable? The IAASB expects to set out its path on this issue during the first half of 2020.

The AICPA’s Auditing Standards Board looks to converge its standards with those of other standard-setters as well, ASB Chair Mike Santay said, as they recognize CPA firms do work for both private and public companies. The ASB is also changing the audit report for next year, similar to what the PCAOB is requiring. In addition the ASB changed its materiality standards to align with those of other standard setters. The ASB is now deliberating its exposure draft on audit evidence, which calls for a mindset change that brings in auditor skepticism. Mr. Santay presented an overview of the ASB’s standard-setting projects including a project plan under development related to NOCLAR (non-compliance with laws and regulations) and what an auditor is required to report. “Quality control is a big ticket item for small firms, and we will have our own exposure draft when the IAASB comes out with their standard,” Mr. Santay said.

NASBA’s recent activities were summarized for the conference by Noel Allen, NASBA legal counsel. He pointed out that the Boards follow through on SEC enforcement actions. NASBA has supported the PCAOB and AICPA with amicus briefs when there have been court challenges. NASBA submits comments on exposure drafts and is helping Accountancy Boards face anti-regulatory challenges.

Moderator Douglas Carmichael asked: “To what extent will there be convergence among the SEC, PCAOB and IAASB on quality control?” IAASB Chair Seidenstein responded: “We understand the importance of alignment. We are trying to finalize our standards at our June meeting this year with a significant implementation period. There is no end point in standard-setting: We continue to improve going forward.” Mr. Santay added: “We are engaged in studying where quality management is going. The framework makes sense, but we are a long way from issuing a standard.”