Things are slowing down at the Public Company Accounting Oversight Board, and not just because of the impending holiday season. The board has softened its target dates to complete or hit key milestones on various auditing standard setting projects, primarily to allow more time for cost benefit analysis required by under the Jumpstart Our Business Startups (JOBS) Act.
The PCAOB published the latest version of its standard-setting agenda adding roughly six months or more to many of its key projects. The board moved many of the projects it expected to possibly complete in late 2012 into the first half of 2013, reportedly to comply with the new JOBS Act requirements. The JOBS Act requires the PCAOB to perform a cost-benefit study on any regulation it plans to impose on “emerging growth companies,” a new category of start-up public companies that is exempt from several long-standing regulatory requirements.
According to the PCAOB's standard-setting agenda of late 2011, the board expected to issue revised proposals or possibly finalize new auditing standards on how to audit related-party transactions, how to revise the auditor's standard reporting model, and whether and how to identify the engagement partner on each public company audit. The board also expected to publish a revised proposal or final rule on how auditors should rely on the work of outside specialists as they reach audit conclusions, how to audit fair value measurements for financial instruments, and how auditors should conduct confirmations of assertions such as cash balances in bank accounts.
A year later, the board's November 2012 standard-setting agenda pushes all of those projects into the first half of 2013 and for several doesn't predict an expected timeline at all. Standards for auditing the fair value of financial instruments and auditing accounting estimates are eventually headed for a proposal, but the board gives no timeline for when such proposals might be issued. Those standards in particular were labeled high priorities recently, when PwC said in response to its latest unflattering inspection report that standards on those specific topics might bring sorely needed clarity to the expectations regulators are placing on auditors.
The Securities and Exchange Commission, blistered in Congress and the Courts in recent months alongside other regulators for implementing requirements with little or no empirical study of their costs or benefits, is also raising the bar on the PCAOB. SEC Commissioner Troy Paredes called on the PCAOB to perform more rigorous cost-benefit analysis of its proposals shortly after PCAOB Chairman James Doty promised Congress he would assure any proposal on mandatory auditor rotation would be based on a cost-benefit study. “Without such a rigorous analysis, there is a greater risk that a proposed standard or other PCAOB rule could do more harm than good,” Parades said in a speech earlier this year.
The SEC must approve any PCAOB rule or auditing standard before it can become effective, and the U.S. Chamber of Commerce is already calling on the SEC to reject the PCAOB's recently approved standard on required communications by the auditor to the audit committee, saying its costs and benefits were not adequately explored.