The Public Company Accounting Oversight Board (PCAOB) will consider issuing a proposal on key audit quality indicators (AQIs) in the coming months this year, according to the staff’s latest update to the standard-setting and research agendas, published on May 16, 2023.
It fulfills the current board’s goal of not having its research projects on the agenda for more than a year. And the AQI project—renamed as Firm and Engagement Performance Metrics—was revived in the fall of 2022 after some members in the Investor Advisory Group asked the current leaders of the PCAOB to complete the project. It was started about a decade ago under different board members. After the staff had studied it, the PCAOB issued a preliminary rulemaking document in 2015 but set it aside because of strong resistance from auditors.
“The PCAOB is pursuing one of the most ambitious standard-setting agendas in its history, and the updates reflect the solid progress that we are making to carry out that agenda,” said PCAOB Chair Erica Williams in a statement. She became chair in January 2022, and the PCAOB has since been working on many projects in a shorter-time frame than most of her predecessors.
Other Updates to Standard-Setting and Research Agendas
The AQI project is not the only one that was put on the board’s short-term standard-setting agenda. The mid-term project Substantive Analytical Projects was moved to the short-term agenda, and the board staff is planning to present a proposal for the board’s consideration also in 2023.
The board’s objective, according to the agenda, is to consider “changes to an auditor’s use of substantive analytical procedures to better align with the auditor’s risk assessment and to address the increasing use of technology tools in performing these procedures, including whether to revise AS 2305, Substantive Analytical Procedures.”
AS 2305 has largely remained the same after it was issued in 1989. But since then, the PCAOB issued risk assessment standards, and there has been an increase in the use of technology by auditors.
When the PCAOB was established by the Sarbanes-Oxley Act of 2002, the board adopted AICPA standards on an interim basis.
The update also shows two projects that were added to the mid-term agenda, which are items that board action is not expected in the next 12 months.
The first project is Use of a Service Organization, and the board is studying whether and how AS 2601Consideration of an Entity’s Use of a Service Organization, should be revised “to reflect changes in how companies use services of third parties that are relevant to the company’s own internal controls over financial reporting and developments in practice.”
The other project is Interim Financial Information Reviews. And the board is considering updates to AS 4105, Reviews of Interim Financial Information, “in connection with the Interim Standards project to reflect changes in the auditing and reporting environment.”
Currently, there are seven other short-term standard-setting projects for a total of nine. The other seven are:
- Quality Control—final standard adoption slated for 2023
- Confirmation—final standard adoption planned for 2023
- Noncompliance with Laws and Regulations—proposal in 2023
- Attestation Standards Update—proposal in 2023
- Going Concern—proposal in 2023
- AS 1000 Series—proposal issued in March with next step pending review of feedback
- Amendments Related to Certain Aspects of Designing and Performing Audit Procedures that Involve Technology-Assisted Data Analysis—proposal in 2023
There are five projects on the mid-term agenda: Fraud; Interim Ethics and Independence Standards; Use of a Service Organization; Interim Financial Information Reviews; and Interim Standards.
Four New Rulemaking Projects
In addition, the most recent update includes four new rulemaking projects—separate from standard-setting—with plans to issue proposals sometime this year on all of them.
They are as follows:
- Contributory Liability—the board will consider changes to Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations.
- Firm Reporting & Transparency—the board will consider changes to audit firm reporting requirements, including periodic reporting requirements, special reporting requirements and other enhancements to the audit firm reporting framework.
- Registration—the board will consider changes to enhance its audit firm registration program.
- Follow-on Disciplinary Proceedings—the board will consider rule changes to expedite follow-on disciplinary proceedings against firms or associated individuals who have been convicted of certain crimes or were enjoined or sanctioned by a court or another regulator.
“Our new rulemakings also show our commitment to making enhancements that will allow the PCAOB to execute our mission to protect investors more effectively and efficiently,” Williams said.
This article originally appeared in the May 17, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.