Jeanette M. Franzel, PCAOB Board Member, recently gave her views on the PCAOB’s requirements. Ms. Franzel noted the PCAOB has heard that in response to some recent changes, some issuers have expressed concerns about the value of additional audit work in the internal control over financial reporting, or ICFR, area, and whether there will be significant increases in costs as a result.
According to Ms. Franzel, the PCAOB has received feedback that would indicate there has not been effective communication and dialogue between audit firms and issuers about ICFR issues. In some cases, audit firms have told issuers that the PCAOB insists on detailed procedures such as the use of “screen prints” to document certain systems-related features; or specifying the number of pages that must be involved in summarizing key controls; or that auditors must attend management meetings to observe certain controls in action. Ms. Franzel stated “I assure you that the Board is not requiring procedures at that level of detail. AS 5 provides the guiding standard for ICFR audits.”
Ms. Franzel noted that unfortunately, such responses from audit firms tend to close down the dialogue with financial statement preparers about important basic issues such as identifying key controls, establishing the appropriate level of management documentation and testing, and the nature and extent of auditor testing needed to support the auditor’s ICFR opinion.