When the PCAOB finalized the charters of its two new advisory groups, it decided to add the AICPA’s Auditing Standards Board (ASB) and the National Association of State Boards of Accountancy (NASBA) to its roster of official observers of the Standards and Emerging Issues Advisory Group (SEIAG).
The other advisory group the board set up on March 29, 2022, is the Investor Advisory Group (IAG). (See New PCAOB Leaders Unanimously Vote to Form Two Advisory Panels in the March 30, 2022, edition of Accounting & Compliance Alert.)
The audit regulatory board at the end of January initially proposed to have a representative from the SEC, the FASB, and the International Auditing and Assurance Standards Board (IAASB) to be non-voting participants during the advisory panel’s meetings, which will take place at least twice a year. Absent were the AICPA and NASBA.
The PCAOB’s move addresses comment letters written by the two associations, who said that they can offer insights during SEIAG meetings in response to Release No. 2022-001, Request for Public Comment: Advisory Groups—Draft Governance Frameworks, a staff member said during the open meeting. (See PCAOB Seeks Candidates for New Advisory Groups in the February 2, 2022, edition of ACA).
The chair of the ASB had observer status on the PCAOB’s old Standing Advisory Group (SAG) since 2004, but the AICPA said that it was “earnestly concerned” that the ASB did not make the cut in the initial charter for the SEIAG.
“We urge you to consider how the ASB’s standard setting role for audits of private entities (some of which ‘go public’) could be helpful as the PCAOB seeks information and advice on its standards,” wrote Susan Coffey, CEO for public accounting of the AICPA. “The lack of recognition of the ASB as a permanent non-voting attendee on the SEIAG may unintentionally signal a lack of commonality between standard setters regarding audit quality and may impede efficient and effective standard-setting.”
Similarly, NASBA said that it shares a similar mission with the PCAOB to protect the public’s interests.
“With the responsibility of licensing and regulating CPAs and firms practicing within the statutorily defined scope of the practice of public accountancy, NASBA through the State Boards offers a unique perspective that compares to no other regulatory body,” wrote NASBA Chair Michael Fritz and President and CEO Ken Bishop. “We therefore believe that regulators should be included in both the IAG and the SEIAG. Specifically, we are requesting that consideration be given to designating a representative of NASBA as a non-voting attendee (or permanent observer status) with the right of floor in filling one of the regulator seats.”
The final charter of the IAG designates only the SEC as an observer at IAG meetings. But the board “may designate additional observers, per meeting, as necessary or appropriate.” Likewise, the SEIAG may designate additional observers, per specific meeting.
AICPA’s Rationale for Permanent Observer Status
To better explain why a representative of the ASB should have a permanent role as a non-voting SEIAG attendee, the AICPA said that it is important to have a clear understanding of the pathway and audit requirements of companies that are transitioning between private and public company.
In particular, there has been a record number of special purpose acquisition company (SPAC) deals in the past couple of years. Moreover, the association said private capital has been pouring into non-issuers, including those that were once public.
“As a result, the public interest is best served by systematic information sharing between the PCAOB and ASB,” AICPA’s Coffey wrote. “Such an approach will aid audit committees, companies, and their auditors when companies transition between the private and public capital markets and when navigating the related reporting and regulatory environments.”
Coffey said that the AICPA has a unique vantage point because of its broad outreach with CPAs and businesses in the U.S. Its perspectives are not like that of the IAASB, which does not focus on American audit issues. Also, unlike the IAASB, the AICPA has been gaining knowledge from a congruent peer review program.
Moreover, the PCAOB and the ASB have been addressing common challenges and opportunities, she said.
Challenges include disruptive technology, talent shortages, and fraud. Opportunities are data analytics, environmental, social, and governance (ESG), potential future standard-setting activities on fraud, and outreach with users of the auditor’s report.
“In short, we can learn from each other,” she said.
This article originally appeared in the April 1, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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