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Tax & AccountingJune 22, 2022

PCAOB adopts new requirements for lead auditor’s use of other auditors

By: CCH ARM Editorial

On June 21, 2022, the Public Company Accounting Oversight Board (PCAOB) adopted amendments to its auditing standards that apply to audits involving multiple audit firms. The amendments, which include changes to existing standards and adoption of a new standard, aim to improve the quality of audits where other accounting firms or individual accountants outside the accounting firm that issues the auditor’s report (the “lead auditor”) perform important work on the audit.

“Today, after an extensive process of analysis and public input regarding the lead auditor’s use of other auditors, the Board is taking action to improve audit quality and strengthen investor protection,” said PCAOB Chair Erica Y. Williams. “These amendments will require audit firms to ensure that lead auditors sufficiently plan, supervise, and evaluate the work of other auditors.”

The PCAOB noted that working with other auditors can create challenges in coordination and communication. These challenges can lead to misunderstandings about the nature, timing, and extent of the other auditors’ work and can reduce audit quality.

To address such situations, the amendments improve PCAOB standards principally by:

  • Specifying certain procedures for the lead auditor to perform when planning and supervising an audit that involves other auditors; and
  • Applying a risk-based supervisory approach to the lead auditor’s oversight of other auditors for whose work the lead auditor assumes responsibility.

The Board adopted the following amendments:

AS 1206, Dividing Responsibility for the Audit with Another Accounting Firm, was adopted.

The following standards were revised:

  • AS 1015, Due Professional Care in the Performance of Work;
  • AS 1105, Audit Evidence;
  • AS 1201, Supervision of the Audit Engagement;
  • AS 1215, Audit Documentation;
  • AS 1220, Engagement Quality Review; and
  • AS 2101, Audit Planning.

AS 1205, Part of the Audit Performed by Other Independent Auditors, and AI 10 (Interpretations of AS 1205) were rescinded.

The amendments came after three public comment solicitations. “We look forward to monitoring the implementation and impact of these improvements to our standards as we evaluate whether our objectives in this area are fulfilled,” Chair Williams said.

The amendments apply to all audits conducted under PCAOB standards. Subject to approval by the Securities and Exchange Commission, the amendments will take effect for audits of financial statements for fiscal years ending on or after December 15, 2024.

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