In this comment letter, more than 200 audit committee chairs, board members and other capital markets stakeholders signed on to share their concerns about proposed Amendments to PCAOB Auditing Standards related to a Company’s Noncompliance with Laws and Regulations and Other Related Amendments. This letter was submitted on behalf audit committee chairs, members, and other public company board members who collectively sit on the boards of public companies aggregating to over $2 trillion in market capitalization.
These stakeholders support the PCAOB’s mission to protect investors by modernizing audit standards that support the performance of continued high-quality audits in today’s complex business environment. However, they are concerned that the proposed amendments do not advance that mission. The board members are concerned that the PCAOB’s proposal risks reducing audit quality and lessening investor protections while unnecessarily increasing the cost and complexity of audits.
Specifically, the board members shared the following concerns:
- 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.
In the comment letter, the signatories agree:
- Any change should keep the auditor focused on NOCLAR that could materially impact the financial statements, such as material penalties or loss contingencies.
- 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. This comment letter contains important perspectives from these stakeholders on AS 2405 that the PCAOB should consider.
Read the full comment letter here.