The Public Company Accounting Oversight Board (PCAOB) usually drafts proposed standards and seeks responses from all stakeholders, including group’s organizations, agencies, and any other interested persons before implementation. This is to ensure that opinions from all the stakeholders are factored in before the final promulgation of the document. Stakeholders usually have different views on possible effects of full implementation of the document.
This paper sets to examine The Docket 036: Auditing Standard on Auditing Supplemental Information Accompanying Audited Financial Statements and Related Amendments to PCAOB Standards a proposed PCAOB notice of a proposed rule as well as responses from various stakeholders to PCAOB notices and how their comments influence the development of accounting promulgations.
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The PCAOB released the proposed rule on July 12, 2011. It proposed a new auditing standard, Auditing Supplemental Information Accompanying Audited Financial Statements ("the proposed standard"). It would benefit investors and other users of financial statements by updating and enhancing the required audit procedures when the auditor of the financial statements is engaged to audit and report on whether supplemental information accompanying the financial statements is fairly stated, in all material respects, concerning the financial statements as a whole. The proposed standard would supersede AU sec. 551, reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents, and also amend some PCAOB auditing standards.
Several factors influenced the board to reconsider its requirements regarding supplemental information. Standards. Mainly, Section 982 of the Dodd-Frank Wall Street Reform and Consumer Protection Act granted the board oversight of the audits of brokers and dealers registered with the Securities and Exchange Commission(SEC). The amendment would add that these audits be performed in accordance with SEC regulations.
Following the release of the proposed amendments, the board received comments in support of and against these changes.PricewaterhouseCoopers (PwC) submitted comments that were in support of the proposed standard. PwC believed that the standard would provide a consistent framework for work done on supplemental information by the auditor. It was also in support of the Board’s effort to strengthen the coordination of the auditor’s work on supplemental information, with work done in connection to financial statement audit. As for the definition of supplemental information, PwC indicated that its description in the proposal did not cover particular situations. For example, in cases where the need for supplemental information does not exist.
Also, PwC provided suggestions on areas of improvement, such as evaluation and reporting of audits and definition of supplemental information. Their first suggestion was that the auditor should consider the form and content of supplemental information and whether it complies with regulatory requirements, especially when determining whether the supplemental information is fairly stated in all material aspects regarding financial statements taken as a whole. Secondly, to promote consistency in reporting, they suggested that when an auditor has disclaimed an opinion on basic financial statements, he should not express an opinion on supplemental information. Lastly, PwC claimed that the current language of the standard was not applicable or appropriate in cases where the "in relation to" report is issued after the initial issuance of financial statements.
In contrast to PwC, Texas Society of Certified Public Accounts (TSCPA) offered comments that opposed some aspects of the new proposed standard. One concern mentioned by TSCPA is that in applying requirements of the proposed standard to certain types of supplemental information, while the standard elevates the auditor's responsibility to provide a higher level of assurance, it becomes difficult to gauge the gap between auditor representation and user interpretation. This is because users generally apply an absolute standard of assurance, which is challenging to attain. Regarding offering of additional guidance when reporting on audits of financial statements that include schedules required by SEC regulations, TSCPA argued that further guidance in the area was redundant. Lastly, it argued that moving beyond the “in relation to” audit opinion would increase the effort of the auditor to a level that would not pass the cost/benefit test.
After public comments, PCAOB adopted Auditing Standard No. 17, Auditing Supplemental Information Accompanying Audited Financial Statements, to supersede the Board's auditing standard, AU sec. 551, reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents. It also adopted related amendments to specific PCAOB auditing standards. For example, revisions were made to the language of the standard to clarify that the auditor is required to perform particular procedures regarding the supplemental information rather than a stand-alone audit of that information. The reporting requirements were revised to clarify that evaluation of compliance with regulatory requirements is a required part of forming an opinion on whether the supplemental information is fairly stated. Also, the definition of supplemental information was revised to include other types of supplemental information. These revisions are in line with suggestions provided by PwC and TSCPA.
In conclusion, stakeholders play a significant role in the development of accounting promulgations. Their comments, whether opposing or supporting the proposed standard, are always taken into consideration when developing the final rule.
References
Public Company Accounting Oversight Board. (2011).Retrieved from: https://pcaobus.org/Rulemaking/Docket036/PCAOB_Release_2011-005.pdf
Kathryn Kapka (2011, September 1).Texas Society of Certified Public Accountants. Retrieved from: https://pcaobus.org//Rulemaking/Docket036/003_Texas_SCPA.pdf
Public Company Accounting Oversight Board (2013, October 2013). Auditing standard no.17 .Retrieved from: https://pcaobus.org/Rulemaking/Docket036/PCAOB_Release_2013_008.pdf
PCAOB. Docket 036: Auditing Standard on Auditing Supplemental Information Accompanying Audited Financial Statements and Related Amendments to PCAOB Standards . Retrieved from: https://pcaobus.org/Rulemaking/Pages/Docket036.aspx
PricewaterhouseCoopers. (2011, September 12).Retrieved from: https://pcaobus.org//Rulemaking/Docket036/011_PwC.pdf
