Recent Events

• Inspections
• Standard Setting
• Other

Inspections

On October 22, 2007, the PCAOB issued Release No. 2007-010, which noted (among other things) that inspectors have observed frequent deficiencies in independence compliance by registered accounting firms undergoing triennial reviews (i.e., firms that audit 100 or fewer issuers). Specifically, inspectors found instances where firms were performing prohibited bookkeeping services for clients or using indemnification clauses in their audit engagement letters, which were considered to impair independence. The report also noted deficiencies in some firms’ independence quality controls, including: nonexistent, incomplete or inadequate policies and procedures to help ensure compliance with applicable rules (e.g., communication with an issuer’s audit committee), outdated or incomplete issuer audit client listings and nonexistent independence training programs.

Return to top

Standard Setting

AICPA Professional Ethics Executive Committee (PEEC)

Click here to read highlights of the May 8-9 Open Meeting of the PEEC. Agenda items included: new conceptual framework, network firms, recognition of the International Accounting Standards Board as a standard-setter, new interpretation of "acts discreditable," XBRL services, and other.

See the AICPA Professional Ethics Division web site for additional information.

Public Company Accounting Oversight Board (PCAOB)

SEC reviewing new PCAOB rule on communications with audit committees and revisions to rule 3523 on personal tax services rule. On April 22, 2008, the Board adopted rule 3526, which addresses communications with audit committees and would supersede the Board’s existing interim standard (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees). Compliance with the new rule, which is intended to build upon the interim standard, would be required prior to accepting a new audit engagement (a new requirement) and annually thereafter. It would also require the auditor to describe in writing to the audit committee all relationships between the auditor (and its affiliates) and the client (or potential client) that could reasonably be thought to bear on independence. The auditor would be required to discuss these matters with the audit committee and document the substance of that discussion. If approved by the SEC, the new rule will become effective on the latter of September 30, 2008 or 30 days after SEC approval. The PCAOB also adopted revisions to rule 3523 (Tax Services for Persons in Financial Reporting Oversight Roles). Under the amended rule, an auditor could cease performing tax services for persons associated with a prospective audit client (that would normally be proscribed under rule 3523) prior to the beginning of the professional engagement period and still be considered independent. Certain allowances for tax services provided to persons associated with a company filing an initial public offering would also be provided. The Board also extended the implementation period for this aspect of the rule while the SEC considers whether to approve the amendment. Thus, on or before December 31, 2008, the PCAOB will not apply rule 3523 to tax services provided by an auditor during the audit period if the services are completed before the professional engagement period begins. In July 2008, the SEC posted notice of the new and revised rules, which if approved become effective on the latter of September 30, 2008 or 30 days after SEC approval. The SEC is accepting comments on the rules on or before August 4, 2008.

PCAOB proposes auditing standard. The proposed standard, Engagement Quality Review, would supersede the PCAOB’s interim concurring partner review requirement and apply to all engagements performed in accordance with PCAOB standards. Comments were due May 12, 2008.

See the PCAOB Standards Page for the most recent information.

FDIC Proposes Changes to Audit Requirements, Including Independence Rules. The proposed rule would require auditors of public and non-public FDIC-insured institutions meeting certain thresholds to comply with independence rules of the AICPA, SEC and PCAOB. This would include entities with $500 million or more in total assets and other financial institutions required by the Office of Thrift Supervision (OTS) to have an annual independent audit. Thus, any new independence requirements would significantly affect auditors of entities that to date have not been subject to PCAOB auditor independence rules. The comment period ended on January 31, 2008.

Other

Department of the Treasury - Advisory Committee on the Auditing Profession

On July 22, 2008, the Advisory Committee on the Auditing Profession (US Treasury Dept) published its second Draft Report for public comment (Comment deadline: 6/13/08). Draft recommendations address three primary areas:

• Human Capital - human capital issues impacting the auditing profession, including education, licensing, recruitment, retention, and training of accounting and auditing professionals.
• Firm Structure and Finances - audit quality, governance, transparency, global organization, financial strength, ability to access capital, understanding of auditors' responsibilities, and limitations of audits (particularly relating to fraud detection and prevention).
• Concentration and Competition - public company audit market concentration and competition and sustainability of the auditing profession in the context of their impact on audit quality and effectiveness. In this category were several recommendations intended to promote the understanding of and compliance with auditor independence, including:
• The SEC and PCAOB should compile their independence requirements into a single, web-accessible document.
• The AICPA and State Accountancy Boards should clearly specify in their independence rules that, where applicable, SEC and PCAOB rules may differ from their own and be more stringent.
• Audit firms should develop internal training materials that help foster and maintain the application of healthy professional skepticism with regards to independence and other conflicts. Firms should also develop training specifically geared towards partners and mid-career professionals. The Advisory Committee also recommends that these training programs be subject to inspection by the PCAOB.

An addendum, which addressed the auditor’s report (including who signs the report), accounting firm public reports / transparency, and the impact of professional liability on firms, was issued on June 12, 2008. (Comment deadline: 7/22/08.)

See the ACAP home page for additional information.