PCAOB proposal puts pressure on auditors to find fraud

The Public Company Accounting Oversight Board (PCAOB) proposed standard updates that would require auditors to enhance scrutiny toward potential instances of company noncompliance, including fraud, in their audit work.

The proposal addresses a controversial topic of responsibility for the audit community that has received renewed interest of late with recent corporate scandals, most notably Wirecard in Germany. The chief accountant at the Securities and Exchange Commission, which oversees the PCAOB, said in a statement last year auditors must embrace their role in fraud detection.

The PCAOB’s proposal seeks to establish this as a requirement for auditors through identification, evaluation, and communication. The proposal would amend AS 2405, currently titled “Illegal Acts by Clients,” to be renamed “A Company’s Noncompliance with Laws and Regulations.”