Audit Conduct

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PCAOB SAG independence and other discussions

The PCAOB's Standing Advisory Group (SAG) held a meeting on June 5-6, 2018, which included discussions on: 

  • the new Board's re-evaluation of its operations, including standard-setting and inspections, 
  • a status update on pending standards and research projects, including one to examine rule 3526 on communications with audit committees about independence,
  • corporate culture
  • advanced technologies, 
  • cyber-security and 
  • new auditor's report.

As part of the discussion on research projects, Acting Chief Auditor and Director of Professional Standards, Barbara Vanich apprised the SAG that the PCAOB is examining whether the Board should amend rule 3526, Communications with Audit Committees Concerning Independence, or issue guidance to clarify the rule. The project arose in light of some firms' failure to comply with PCAOB and SEC rules requiring communication with the audit committee when an auditor violates an independence rule (e.g. financial interest, prohibited service) during the audit period but has reconciled the issue before the firm issues its affirmation of independence. Ms. Vanich emphasized that the rule's intent was that firms would include independence violations occurring during the audit period in discussions with the audit committee.

It was reported that auditor independence was discussed in one of the SAG's "break-out" discussions, where the following points were noted: concern about increased provision of consulting services on auditor independence and audit quality; pros and cons of "audit only" firms; how independence violations are disclosed to investors, i.e., SEC staff has formal and informal consultations with a firm when a possible violation is identified, which may require disclosure in the company's filing, and that violations of independence rarely result in auditor changes.

Another break-out group discussed recurring inspection findings, which led to a suggestion that the PCAOB speak with firms as a group (perhaps on an industry basis) to discuss the firms' root cause analyses of recurring findings.