July 25, 2023

ACC Comment Letter | PCAOB Non-compliance with Laws and Regulations (NOCLAR)

In this comment letter, the Audit Committee Council (ACC) provides views to the PCAOB related to its request for comment on a proposed new auditing standard, AS 2405, A Company’s Noncompliance with Laws and Regulations, or “NOCLAR.”

The ACC is an independent advisory committee of the Center for Audit Quality comprised of independent audit committee members, including audit committee chairs. We, as audit committee chairs and members, share the concerns raised by PCAOB Board Members Duane DesParte and Christina Ho in the PCAOB’s June 6, 2023, open meeting. Board members DesParte and Ho do not support the proposal.

We are supportive of the PCAOB modernizing auditing standards that support auditors in executing audit procedures that are fit for purpose in today’s complex business environment and ultimately foster high quality audits. However, we are concerned that the proposed amendments would significantly expand the auditor’s responsibilities with respect to noncompliance with laws and regulations.

As covered in our comment letter, our concerns with the proposal are:

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

Read the full comment letter here.