In this comment letter, the CAQ provides views to the PCAOB related to its request for comment on its proposed new auditing standard, AS 1000, General Responsibilities of the Auditor in Conducting an Audit and Proposed Amendments to PCAOB Standards.
The CAQ supports the objectives of the proposal to streamline and clarify general principles and responsibilities of auditors. The auditing profession is committed to its role among the various stakeholders in the US financial reporting ecosystem to protect investors.
Notwithstanding the Board’s assertion within the release accompanying the proposed standard that “the proposed changes to modernize the foundational standards do not impose new requirements on auditors or significantly change the requirements of PCAOB standards,” in the CAQ’s view, certain elements of the Board’s proposal would expand the auditor’s responsibilities and will create confusion for stakeholders, including investors and other users of auditors’ reports regarding the responsibility of the auditor within the financial reporting ecosystem and the level of assurance provided by an auditor’s report, including the potential limitations. As investors form expectations from a number of sources, including potentially the language of the auditing standards themselves, it is in the interest of investors and other stakeholders that the auditing standards are clear in this regard.
Key Observations
- The proposed standard and related amendments will result in more significant changes than what the Board describes within the release text. Certain aspects of the proposed AS 1000 go beyond current standards and expand the auditor’s responsibilities.
- We agree with the auditor’s fundamental role to serve the public interest within the financial reporting ecosystem and enhance the confidence and trust of investors in financial reporting. However, the auditor’s role should not be confused with a legal duty owed to investors.
- It is not appropriate for the auditor to be required to make an evaluation of fairness that goes beyond the evaluation of whether the financial statements are presented in conformity with the applicable financial reporting framework.
- Certain proposed changes, such as those related to the principles of due professional care, reasonable assurance, and professional judgment, and the distinction between the responsibilities of management and the auditor, may lead to misunderstanding about the auditor’s role and inject confusion into the established legal landscape associated with the role of the auditor. This is not in investors’ best interests and will introduce needless uncertainty for auditors and other stakeholders.
- The proposed language used to describe the requirements related to the auditor’s competence may imply that the competence required of an auditor to conduct an audit cannot be achieved through the composition of an engagement team with appropriate collective knowledge, skill and ability. Additionally, such language may imply an inappropriate expectation of expertise in areas beyond accounting and auditing.
Read the full comment letter here.