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Going Concern Paper Expected in March

The PCAOB is nearing publication of three papers in the next few months to address areas of standard-setting that recently had their profiles raised following the SEC’s criticism of the board’s agenda. The first of the staff consultation papers is expected to come in late March and address the possibility of amending the audit guidance for going concern accounting.

The PCAOB is nearing publication of three papers in the next few months to address standard-setting issues that recently had their profiles raised following the SEC’s criticism of the board’s agenda.

The first of the staff consultation papers is expected to come in late March and address the possibility of amending the audit guidance for going concern accounting, PCAOB member Jeanette Franzel said following a February 10, 2015, panel discussion in New York at the Practising Law Institute’s Corporate Governance Master Class.

The audit regulator is considering revisions to Statement on Auditing Standards (SAS) No. 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, and related standards to push auditors to improve their evaluations of a company’s prospects for survival. The board is considering the plan to revise its going concern guidance partly as a reaction to the FASB’s issuance in August 2014 of Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The standard requires businesses to disclose information in their financial statement footnotes when they doubt they can survive through the next year.

The board expects to issue a second paper shortly after the going concern publication to solicit public comments on the use of third parties and specialists.

In 2010, the regulatory board published Release No. 2010-004, Auditing Standards Related to the Auditor’s Assessment of and Response to Risk and Related Amendments to PCAOB Standards, which established a series of eight risk assessment standards firms have to use, particularly when employing specialized skills or knowledge. The standards range from Auditing Standard (AS 8) No. 8, Audit Risk, to AS 15, Audit Evidence.

Board officials believe they need to improve the interim standard they inherited from the AICPA, AU Section 336, “Using the Work of a Specialist,” (AU-C Section 620).

A third paper on the use of third-party audit firms is slated to follow the going concern and specialist papers.

“Those are the ones where we want to spend a lot of time,” Franzel said.

The emphasis on the so-called audit quality standards means that the board’s work on two formerly high-profile projects, the expansion of the auditor report in a regulatory filing and identification of the lead partner on a client audit, may not happen before the summer or fall.

In December, SEC Chief Accountant James Schnurr said the PCAOB’s work on audit quality standards was progressing too slowly.

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