The Public Company Accounting Oversight Board (PCAOB) announced the adoption of a new standard regarding auditor use of confirmation that replaces the previous version that hadn’t been notably changed in more than 30 years.
The new standard, finalized Thursday, overwrites AS 2310, “The Confirmation Process,” which was issued by the American Institute of Certified Public Accountants in 1991 and adopted on an interim basis by the PCAOB as the agency was taking form in 2003. The standard “will better protect investors by strengthening procedures that enhance an auditor’s ability to identify fraud in certain circumstances and improving overall audit quality,” the agency said in a press release.
PCAOB Chair Erica Williams celebrated the adoption as the first standard-setting project undertaken by the current board to progress from proposal to conclusion. The PCAOB has put forward other proposals in recent months as part of a larger push to modernize its regulatory approach.
“Our capital markets don’t stand still,” Williams said in a statement. “They evolve constantly. Practices change. Technology advances relentlessly. And new risks emerge. To keep investors protected, our standards must keep up.”
The new standard better reflects today’s reliance on electronic communications over the exchange of paper documents. It calls for a principles-based approach to auditor confirmation, which is the process of an auditor verifying information about financial statement assertions with a third party.
Key components of the standard include:
- New requirements regarding confirming cash and cash equivalents held by third parties or otherwise obtaining relevant and reliable audit evidence by directly accessing information maintained by a knowledgeable external source;
- Clarification that use of negative confirmation requests alone does not provide sufficient appropriate audit evidence; and
- Emphasis on the auditor’s responsibility to maintain control over the confirmation process.
The new standard would take effect for audits of financial statements for fiscal years ending on or after June 15, 2025, following approval from the Securities and Exchange Commission. The SEC oversees the PCAOB.