PCAOB Chief Auditor gave an audit standard-setting update at the 2023 AICPA & CIMA Conference.
Barbara Vanich, PCAOB Chief Auditor, provided an update on the PCAOB鈥檚 priorities and standard-setting activities at the Conference on Tuesday. Vanich鈥檚 remarks show clearly how the PCAOB is working to modernize its auditing standards. The importance of transparent and meaningful communications was also highlighted as a focus of PCAOB staff in several PCAOB initiatives covered by Vanich during this session.
鈥淲e continue to be encouraged by the PCAOB鈥檚 considerations of technology innovations in its standard-setting activities. Technology is transforming the audit 鈥� providing auditors with more insight than ever before. We believe auditors skilled in technology, critical thinking and analysis have the ability to meaningfully strengthen audit quality.鈥�
Jamie Lynch
乐鱼（Leyu）体育官网 Deputy Chief Auditor
As reported in our聽Day 1 blog, it鈥檚 no secret that the way in which external auditors conduct audits is being transformed by advances in technology. For example, auditors use technology to inform risk assessment, obtain a deeper understanding of business process and related transactions, and drive a consistent response to risk 鈥� all of which can enhance audit quality.
Vanich highlighted the PCAOB proposal on data and technology amendments issued earlier in the year, noting that the proposal provided narrow-scope clarifications and modernizations when auditors use technology-assisted analysis in the audit. The proposal is designed to address the risk of the auditor over-relying on internal information produced by the company and evaluating the sufficiency and appropriateness of audit evidence when using technology-assisted analyses.
On Day 1, we heard from Paul Munter, SEC Chief Accountant, that issuers and auditors are in the communications business. That theme also came through in Vanich鈥檚 remarks related to PCAOB activities around critical audit matters, firm and engagement metrics, and inspection reports. Investors (and audit committee members) are asked to evaluate and reappoint auditors, and Vanich shared feedback received through their investor advisory group stating that investors have little information to make that decision. The PCAOB aims to provide the public with decision-useful 鈥� meaningful and transparent 鈥� information through these initiatives.
Vanich discussed the PCAOB鈥檚 standard-setting project to consider the increased demand for firm and engagement performance metrics. PCAOB staff have received feedback on audit quality indicators through discussion with their advisory groups and comment responses related to quality control and the PCAOB鈥檚 strategic priorities, among others.
The PCAOB expects to issue a proposal in 2024. Read more about the project聽.
On Monday, PCAOB Board members spoke about how the PCAOB鈥檚 standard-setting activities support the PCAOB鈥檚 strategic priorities. Vanich provided additional details on many of the other standard-setting projects, some of which we include below.
"By the end of 2024, it鈥檚 possible we鈥檒l see an expansion of the role of external auditors under the now-proposed PCAOB standards 鈥� in particular related to noncompliance with laws and regulations (NOCLAR). Effectively implementing these proposed standards when they become effective will require meaningful dialogue between management, the audit committee and the auditor."
Samantha Demty
乐鱼（Leyu）体育官网 Partner
Proposed AS 1000,聽General Responsibilities of the Auditor in Conducting an Audit, would modernize principles spread across several existing auditing standards. These principles relate to an auditor鈥檚 general responsibilities, including due professional care and professional skepticism.
Important elements of this proposal are:
The proposal also fits in with a general theme from remarks on Monday by SEC representatives 鈥� the impact of a strong audit firm culture. Vanich spoke to the importance of establishing a culture that prioritizes audit quality and that recognizes and rewards those efforts.
Believing that AS 2405,聽Illegal Acts by Clients, needs to be modernized, the PCAOB has proposed extensive changes to the auditors鈥� responsibilities related to NOCLAR. The proposed standard includes requirements to identify laws and regulations with which noncompliance could reasonably have a material effect on the financial statements (1) to identify whether there are instances of NOCLAR that have or may have occurred, and (2) to evaluate those NOCLAR instances and communicate them to appropriate parties, regardless of perceived materiality.
In addition to the direct effects the proposal would have on audits, the proposed amendments would also affect the company, its processes and controls, and the level of effort required from management.
Read more about the proposal in our Defining Issues,聽PCAOB proposal would expand auditors' responsibilities.
Vanich鈥檚 remarks also tied back to the theme we heard from the SEC鈥檚 Office of the Chief Accountant on Monday 鈥� the importance of risk assessment, including how business risks can affect the risks of material misstatement. See our reporting in our聽Day 1 blog聽for more risk assessment highlights.
Receive the latest financial reporting and accounting updates with our newsletters and more delivered to your inbox.
Access our accounting research website for additional resources for your financial reporting needs.