On June 30, the Public Company Accounting Oversight Board released an updated version of its standard-setting agenda. That agenda indicates that the Board plans further public action before the end of this year on its two proposals to re-write the auditor’s report.
With regard to the proposal (discussed in the prior item) to expand the auditor’s reporting model by requiring CAM disclosure and auditor evaluation of “other information,” the agenda states that the Board’s staff is in the process of drafting a reproposal for public comment. While the agenda provides no substantive details, reproposal would normally indicate that there will be significant changes to the original proposal and that the Board wants to have the benefit of further public comment on its new approach. In light of the critical comments received on the original proposal (see January 2014 and May 2014 Updates), and the implementation challenges identified in the CAQ’s field testing (see above), reproposal is not a surprise.
The other pending PCAOB proposal to change the auditor’s report would require that the audit opinion include the name of the engagement partner and the names, locations, and extent of participation of accounting firms other than the signing firm that participated in the audit. This proposal, which was discussed in the November-December 2013 Update, has also been controversial, in part because of the possible impact on engagement partner and participating firm liability, and in part because naming the engagement partner and participating firms would require that consents be obtained from them in order for the audit opinion to be included in a registration statement for a securities offering. Obtaining such consents could be a logistical problem in some cases. The standard-setting agenda states that the staff intends to recommend adoption of these proposals, but that the adopting release will “tak[e] into account comments received on the reproposal including comments related to liability and alternative locations for the disclosure.” One alternative that has been suggested is requiring that the name of the engagement partner and the participating firms be included in a PCAOB filing, rather than in the auditor’s opinion, in order to avoid the consent requirement.
Comment: Audit committees should follow the progress of both of these projects because of their potential impact on the auditor/public company relationship. Reproposal will open another opportunity to comment on the reporting model changes. Many companies and audit committee members submitted comments on the original proposal and, because of the importance of the changes, consideration should be given to commenting on the reproposal.