Regulators are poised to soon issue a final rule requiring audit firms to name engagement partners and others from outside the principal audit firm who participate in a public company audit.
Jim Doty, chairman of the Public Company Accounting Oversight Board, said he believes the board will be in a position “very soon” to finalize a rule requiring audit firms to submit a new form, Form AP, to the PCAOB naming engagement partners and other accounting firms that contribute to the final audit opinion for public companies. Doty and other members of the PCAOB have said they believe it will call auditors to a greater sense of accountability for the audit opinion.
The requirement has been years in the making after the PCAOB first proposed requiring engagement partners to take pen in hand and sign the audit report, much the way CFOs and CEOs certify financial statements. Audit firms protested the signature requirement, and any other method of naming auditors in audit reports, arguing it would increase their personal liability.
The PCAOB should also be in a position in 2016 to move forward with a new proposal to expand the traditional auditor’s report, said Doty, and other proposals on using the work of other auditors, using the work of other specialists, and auditing accounting estimates, including fair value measurements.
Doty offered his projections on what the PCAOB will accomplish in 2016 as he recommended adoption of the board’s $257.7 million budget for 2016. The $257.7 million budget, approved by the PCAOB, represents a 2.7-percent increase over the 2015 budget, yet a 5-percent increase over what the board expects to actually spend in 2015, said PCAOB member Jeanette Franzel. The board has typically underspent its budget in recent years as it faces staffing challenges in a tight market for accounting and audit talent.
Franzel said she is hopeful the board will be able to devote more attention in 2016 to some “unfinished business,” especially the interim standards on auditing, quality, control, ethics, and independence that the board adopted on an interim basis from professional literature when it formed in 2003. Staff members at the Securities and Exchange Commission have called on the board to put more focus on updating professional standards that would upgrade audit practices.
The board said in 2012 it had a “near-term goal” of enhancing the framework for its standard-setting process to make standard-setting more effective and enable better tracking of projects for investors and other stakeholders. “During 2015, we have engaged a consultant to assist with this process, and those efforts will continue into 2016,” Franzel said.
The PCAOB’s 2016 subject to approval by the Securities and Exchange Commission.