July 28, 2015
I am a partner in the Professional Practice Group at EisnerAmper LLP. Based in New York, NY, I am a member of the American Institute of Certified Public Accountants (AICPA), the CAQ's Smaller Firm Task Force, the New York State Society of CPAs and the NYSSCPA's International Accounting and Auditing Committee. In these roles, I advise staff and clients, as well as those from other firms, on the application of Public Company Accounting Oversight Board (PCAOB) standards, and standards of the AICPA's Auditing Standards Board (ASB) and the International Auditing and Assurance Board (IAASB.)
I welcome the opportunity to comment on the ratification by the Securities and Exchange Commission (Commission) of the PCAOB's Proposed Framework for Reorganization of PCAOB Auditing Standards and Related Amendments to PCAOB Auditing Standards and Rules (Proposal or Proposed Framework). This letter represents only my views and not those of any of the organizations of which I am a part as noted above.
I support the proposed reorganization and the overall effort to improve the usability of PCAOB auditing standards. I have identified several suggestions for the Commissions consideration that I believe will further improve and support the PCAOB's effort.
I agree that organizing the PCAOB's auditing standards into a topical structure with a single integrated numbering system is an improvement to the current numbering system and while I believe the Proposed Framework generally follows the flow of the audit process, it does not serve the goal of making it more likely that an auditor will, as a result, adhere appropriately to the standards and perform a better audit.
As noted in the Proposed Framework, the Board considered adopting the organizational structure of another standard-setter to facilitate comparison of auditing standards across different frameworks. The ASB has completed a several years' long project to reorganize and clarify their auditing standards, one aspect of which was to enhance comparability with the standards of the IAASB, specifically to facilitate comparison and enhance compliance with standards. While the Board chose not to pursue this alternative, I believe they should reconsider the benefits that could be realized through adopting a similar structure as that used by the ASB and the IAASB. This would support the auditor's application of the applicable auditing standards by allowing the auditor to quickly identify and consider similarities and differences associated with standards or topics across auditing standard frameworks. This could be particularly helpful for auditors conducting audits under a new framework for the first time, such as when an auditor of a privately-held company becomes subject to the PCAOB's standards by way of an initial public offering, or when an auditor of a U.S. issuer conducts an audit under IAASB standards in conjunction with the audit performed under PCAOB auditing standards. Additionally, auditors of U.S. issuers who are also performing audits of other entities using the auditing standards of the ASB would be less likely to make an error of omission when moving from an engagement under one set of standards to another.
Both the standard setters (PCAOB, ASB and IAASB) and the auditors of issuer and non-issuer clients face an increasingly complex, global, and integrated financial reporting environment. I believe that auditors and the users of the financial statements they audit would benefit from a more consistent organization of the standards which would promote a deeper understanding of how the different auditing frameworks compare, and how differences in their respective requirements and application guidance affect the execution of audits performed in accordance with the different sets of standards. I encourage the PCAOB to reconsider its decision to eschew the organization that the ASB and IAASB used in coordination with other standard-setters. I believe such an initiative would be consistent with the PCAOB's strategic plan which in-part calls for cooperation and consideration of the work of other standard-setters and regulators, many of which have as their authoritative body of standards one of these two sets, or a derivative of them.
I support the elimination of references to generally accepted auditing standards or outdated references to accounting standards in the Proposed Framework. I do not believe, however, that AU Section No. 532, Restricting the Use of an Auditors Report should be rescinded. While not typically used in the context of an engagement related to an issuer, there are many other circumstances where an audit may be performed under PCAOB standards at the request of a user of the financial statements when such a restriction may be appropriate. This option should continue to be made available.
Scope and Other Matters
I am disappointed that the Board's proposal excludes the PCAOB's attestation, quality control, and ethics and independence standards from the scope of the Proposed Framework and if not reconsidered, strongly urge the Board to increase its efforts to consider a separate, but similar reorganization project in the future related to these other standards, especially as these standards may affect filings by issuers with supplementary information and broker-dealers which are newly under the PCAOB's authority.
The scope of the Proposed Framework also excludes a requirement to consider other guidance which may be available for circumstances not covered by the PCAOB's standards, increasing the risk that an appropriate other procedure may not be performed for fear of violating a standard of the Board or that staff has interpreted. While I agree that the full text of the PCAOB's other guidance should be excluded from the Proposed Framework, I believe it would be appropriate for the Proposed Framework to include a reference to the other guidance to assist auditors with performing an appropriate audit, and to assist in their navigation between the authoritative auditing standards and the non-authoritative other guidance.
I appreciate the opportunity to comment on the Boards Proposed Framework. I welcome the opportunity to respond to any questions regarding the views expressed in this letter.