PCAOB Proposed Auditing Standard on Noncompliance with Laws and Regulations (NOCLAR):

The PCAOB needs to hear from audit committee members

Add your name to the sign-on letter TODAY!

In June 2023, the PCAOB requested comment on a proposed new auditing standard, AS 2405, A Company’s Noncompliance with Laws and Regulations, or “NOCLAR” for short. PCAOB Board Members Duane DesParte and Christina Ho do not support this proposal (see public statements from Board Members Duane DesParte and Christina Ho).

Not surprisingly, we are hearing that audit committee members are very concerned about this proposal as well.

This is the most significant PCAOB proposal since their concept release on mandatory firm rotation (MFR) which received nearly 700 comment letters, including more than 200 letters directly from audit committee members or chairs.

It is critical the PCAOB hears from as many stakeholders as they did on MFR. The proposal, which would apply to every audit conducted in accordance with PCAOB standards, would significantly change the role of the auditor. Specifically, there is concern that:

  • The proposed scope is too broad.
  • The proposal does not sufficiently take into account a company’s existing compliance function and the shared responsibility of the board of directors, the audit committee, the chief compliance officer, and the general counsel.
  • Auditors are not lawyers and as a result the proposed amendments would expand the auditor’s role to include knowledge and expertise outside their core competencies.
  • The proposal will substantially increase the cost of the audit without a commensurate benefit.

Audit committee members should speak out on this topic to let the PCAOB know:

1. Any change should keep the auditor focused on NOCLAR that could materially impact the financial statements, such as material penalties or loss contingencies.

2. Any requirement of the auditor should be risk-based and consider the role the company’s compliance program plays in detecting NOCLAR that could be material to the audited financial statements.

It takes company management, audit committees, auditors, and regulators working in concert to foster a system that supports both high-quality financial reporting and audits. Therefore, the PCAOB needs to hear from you.

We have developed a comment letter outlining the above concerns about the PCAOB’s overreach.

To let the PCAOB know your concerns about the NOCLAR proposal, sign on to the letter today. By submitting your information, your name will be included as one of the signatures on this comment letter, which will be sent to the PCAOB to provide feedback on this proposed auditing standard. All comment letters submitted to the PCAOB are public and maintained on their website here.

*The company name will not appear on the letter. Including the company name here is to assist the CAQ in verifying your affiliation as a member of an audit committee.

Planning to submit your own comment letter?

Submit your comment letter to comments@pcaobus.org. Comments are due by August 7, 2023.

Questions about this letter or the PCAOB’s proposal?

Contact us at hello@thecaq.org .

Additional Resources

Gibson Dunn: Another Step in Seeking to Broaden the Scope of Public Company Audits: The PCAOB Proposes an Expansive Non-Compliance Standard

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NOCLAR: The PCAOB Proposes to Broaden the Auditor’s Role

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