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Yesterday, the PCAOB announced that it will hold an open meeting on Monday, May 13th to consider  adopting a new auditing standard, AS 1000, General Responsibilities of the Auditor in Conducting an Audit. The new auditing standard would consolidate and reorganize several existing standards, and when the PCAOB announced the proposal last year, it said that AS 1000 was intended ‘to streamline and clarify general principles and responsibilities of auditors and provide a more logical presentation, which would enhance the useability of the standards by making them easier to read, understand, and apply.”

On “The Audit Blog”, Dan Goelzer said that there was a lot more to AS 1000 than just housekeeping:

The basic idea of updating and consolidating the foundational standards is sound. Technology, audit practice, and the standards of other audit regulators have all evolved since the PCAOB adopted the existing standards, on an “interim basis,” in 2003. Twenty years down the road, it makes sense to revisit the foundational standards, and the Board deserves credit for doing so.

But, in presenting this initiative as in essence a matter of housekeeping, the PCAOB may be seriously understating its potential impact. The proposal is not merely a repackaging of existing principles. Some aspects would seem to involve changes to the auditor’s responsibilities that would be more fundamental than the release recognizes and could have far-reaching consequences.

Those concerns were echoed by industry commenters on the proposal. Here’s an excerpt from a CAQ publication summarizing the key themes raised by accounting firms in comment letters to the PCAOB:

– The proposal expands the auditor’s responsibilities despite the Board’s statement that the amendments were clarifications of existing standards.
– The proposal eliminates key concepts and principles from the extant standards
– The proposal creates confusion about the auditor’s role and will have other unintended consequences
– Accounting firms and related groups, among other commenters, oppose the clarification of the meaning of fair presentation and state it is important that the auditor’s evaluation of the presentation of the financial statements be applied within the applicable financial reporting framework.

Despite the heartburn the proposed changes are causing to the accounting profession, the CAQ acknowledged that the handful of investors who submitted comments were generally supportive of them.

– John Jenkins