Tax & AccountingJune 06, 2023
PCAOB issues proposal to increase auditor vigilance against fraud and other noncompliance
The PCAOB issued for public comment Release No. 2023-003, Amendments to PCAOB Auditing Standards related to a Company's Noncompliance with Laws and Regulations.
PCAOB release No. 2023-003
If adopted, the proposal would strengthen and enhance auditor obligations in three key respects:
- The proposal would establish specific requirements for auditors to proactively identify – through inquiry and other procedures – laws and regulations that are applicable to the company and that could have a material effect on the financial statements, if not complied with. The proposal also makes explicit that financial statement fraud is a type of noncompliance with laws and regulations.
- The proposal would strengthen requirements related to the auditor’s evaluation of whether noncompliance with laws and regulations has occurred, and if so, the possible effects on the financial statements and other aspects of the audit. For example, the proposed standard would require the auditor to consider whether specialized skill or knowledge is needed to assist the auditor in evaluating information indicating noncompliance has or may have occurred.
- The proposal would make it clear that the auditor is required to communicate to the appropriate level of management and the audit committee as soon as they are made aware that noncompliance with laws or regulations has or may have occurred. Additionally, the proposal would create a new requirement that the auditor must communicate to management and the audit committee the results of the auditor's evaluation of such information. Specifically, this communication would address which matters are likely noncompliance and the effect on the financial statements for those matters that are likely noncompliance.
Public comments
The deadline for public comment on the proposal is August 7, 2023.
Throughout the proposal, the PCAOB requests comment on specific issues. Readers are encouraged to answer these questions, to comment on any aspect of the proposal, and to provide reasoning and relevant data supporting their views.