The Public Company Accounting Oversight Board on Tuesday announced the addition of projects regarding auditor independence and audit evidence to its research and standard-setting agendas.
The agendas provide a roadmap for what the PCAOB is working on and include status updates for each entry. The project on audit evidence is listed under research, while auditor independence is under standard-setting.
The auditor independence project aligns with amendments proposed by the Securities and Exchange Commission in December 2019 to Rule 2-01 of Regulation S-X, Qualifications of Accountants. “Many of the current independence requirements have not been updated since their initial adoption in 2000 and amendments in 2003,” the SEC said in announcing the proposal. Amendments would impact how student loans and de minimis consumer loans are categorized and also revise the definitions of “affiliate of the audit client,” “audit and professional engagement period,” and “investment company complex,” among other updates.
“Confusion may arise if certain terms are used in both the PCAOB’s and the SEC’s independence rules, but defined differently,” the PCAOB noted. “Several commenters on the SEC’s proposed amendments urged the Commission and the PCAOB to work together to keep the Board’s independence requirements aligned with Rule 2-01.”
The PCAOB said staff is monitoring the SEC’s proposals and developing a recommendation for the Board in the event they are adopted.
Regarding audit evidence, the PCAOB is assessing whether there is a need for guidance or changes to the related standard, AS 1105, “given the increasing prevalence of technology-based tools and the increasing availability and use of information from sources external to the company, both in the financial reporting process and as audit evidence.” The PCAOB says it is considering the following:
- Observations from the Board’s oversight activities;
- Changes to audit firms’ methodologies;
- Academic research;
- Outreach with stakeholders; and
- Requirements of other standard-setters and regulators.
The PCAOB said staff will develop a recommendation after obtaining and analyzing the information it finds.
Other projects that remain on the PCAOB’s agenda include changes in use of data and technology in the conduct of audits (under research) and firms’ system of quality control and supervision of audits involving other auditors (each under standard-setting).