Except for one rulemaking item regarding follow-on disciplinary proceedings, the Public Company Accounting Oversight Board (PCAOB) has pushed back the timeline for advancing its standard-setting and rulemaking projects from 2023 to 2024, according to updated agendas revealed on November 1, 2023.
Two New Projects
In the update, the PCAOB added a new project—communication of critical audit matters (CAMs)—to its research agenda. The board also added a new standard-setting project on inventory to its mid-term agenda.
Research Project on CAMs
The research project on CAMs responds to criticisms by some investor advocates and external advisers that the disclosed information have not been all that useful and the number of CAMs has been declining.
“The project seeks to understand why there continues to be a decrease in the average number of critical audit matters reported in the auditor’s report over time and whether there is a need for guidance, changes to PCAOB standards, or other regulatory action to improve such reporting, including the information that is provided as part of the CAM reporting,” according to the agenda.
Mid-Term Standard-Setting Project on Inventory
The project on auditing inventory is also being discussed by the PCAOB’s Standards and Emerging Issues Advisory Group.
The objective is to consider “updates to AS 2510, Auditing Inventories, in connection with the Interim Standards project to reflect changes in the auditing environment,” according to the agenda.
There are now six projects on the mid-term agenda. The other five are: fraud; interim ethics and independence standards; use of a service organization; interim financial information reviews; and interim standards.
Overall Timeframe Change in Agendas
The PCAOB is probably experiencing a delay—likely by months not an entire year—because it has been pursuing the most ambitious standard-setting and rulemaking agendas on an accelerated schedule in the board’s history under the leadership of Erica Williams, who became chair in January 2022.
Still, the PCAOB touted its achievements so far compared to historical efforts, saying it “has taken more formal actions on standard setting and rulemaking than any year in the last 10 years, issuing four proposals – with one more expected to be considered before year’s end – and adopting a final confirmation standard and related amendments that had previously been stalled since 2010.”
And by the end of this year, the board said it will have issued five proposals—“more than any single year in PCAOB history since the first set of standards and rules were proposed in 2003.”
In recent years, the PCAOB has been updating its agendas twice a year, once in the spring—usually in May—and again in the fall—usually in October.
In May, the board wanted to advance eight standard-setting projects on its short-term agenda in 2023. Instead, the PCAOB issued three proposals this year: general responsibilities of the auditor in conducting an audit in March; noncompliance with laws and regulations (NOCLAR) in June; and amendments related to aspects of designing and performing audit procedures that involve technology-assisted analysis of information in electronic form in June, all of which the board is planning to adopt in 2024.
The rest, or five projects that were previously slated for 2023, got pushed back to 2024:
- Adopt quality control standards. A proposal was issued in November 2022.
- Issue a proposal on going concern standards.
- Issue a proposal to update attestation standards.
- Issue a proposal on firm and engagement performance metrics, formerly named audit quality indicators (AQIs).
- Issue a proposal on substantive analytical procedures.
As for rulemaking items, the board in May put four projects on the agenda for 2023, and it issued a proposal on one in September—contributory liability. The board still plans to issue this year a proposal that would consider amendments that would expedite follow-on disciplinary proceedings against firms or associated individuals who were convicted of certain crimes or sanctioned by a court or another regulator.
The board is pushing back the rest to 2024: a rule proposal on firm reporting and transparency and a rule proposal related to the PCAOB’s audit firm registration program.
“We have made incredible progress for investors thanks to the hard work of the talented PCAOB staff, and we are just getting started,” said Chair Williams in a statement. “Our commitment to modernizing our standards and rules remains stronger than ever as we continue working to get these agendas done and done right for investors.”
So far under her leadership, the PCAOB has issued six proposals, adopted two standards and will issue another one later this year.
The two standards adopted are: other auditors and confirmation, which were originally started during previous leadership.
This article originally appeared in the November 2, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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