The Public Company Accounting Oversight Board (PCAOB) on May 13, 2024, voted unanimously to adopt a new standard that could in part slightly reduce the length of time that investors and others have to wait to read inspection results of accounting firms that audit public companies.
Under new auditing standard (AS) 1000, General Responsibilities of the Auditor in Conducting an Audit, auditors must put together the final set of audit documentation within 14 calendar days, rather than the current 45 days, after the auditor’s report is released.
The PCAOB said it is making the changes because most firms document their audit work electronically. And the 45-day documentation rule was adopted in 2004 when audit tools and software were not as advanced as they are today.
Often there is a long lag time when the inspections are carried out and the reports are released publicly. And investors have been complaining for years about not only the usefulness of the inspection reports but also the rather slow process of issuance for public consumption. Part of the lag time is necessary, but other parts of the process could be improved, observers say.
While the lag time between inspections and the publication of reports may not be reduced, PCAOB inspectors can start inspecting sooner. This could lead to an overall reduction of wait times for the public.
This is part of a larger effort to update AS 1000 series that were adopted on an interim basis when the board was established following passage of the Sarbanes-Oxley Act two decades ago. And the PCAOB issued a proposal in March 2023 to solicit comments on the new AS 1000. The new standard consolidates a series of standards that address the general principles and responsibilities of the auditor, such as due professional care, professional skepticism, competence, and professional judgment.
“The board’s action today will help ensure that PCAOB standards on the most fundamental auditor responsibilities are up to date and optimized for investor protection,” said PCAOB Chair Erica Williams.
In response to comment letters, the PCAOB said that it has made some changes to the proposal.
Most importantly, the board emphasized that new AS 1000 does not create any new principles or responsibilities for auditors “but simply clarifies those that already exist.”
The standard emphasizes that auditors’ responsibility to investors transcends its relationship with management and the audit committee of the company under audit. Today, there is an inherent conflict of interest because auditors are paid by the company. But the board wants to underscore the auditor’s role as a gatekeeper in instilling confidence in financial statements prepared by public companies.
If the Securities and Exchange Commission (SEC) approves the standard, it will become effective for audits of financial statements for fiscal years beginning on or after December 15, 2024. The SEC oversees the PCAOB.
Small firms will have one extra year to comply with the accelerated audit documentation period.
The PCAOB on May 13 also voted to adopt new quality control standards.
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