Audit Standards Might Get a Makeover

The PCAOB is proposing a reorganization of its auditing standards in the hope that they will be easier to follow by both auditors and educators.
Kathleen Hoffelder

Auditing standards could soon get a whole new look and a clearer framework if the Public Company Accounting Oversight Board chooses to enact its own new proposal after a period of public comment. The plan calls for reorganizing existing standards into a single, integrated, numbered system.

Four-digit numbers would replace the current hybrid method of labeling PCAOB audit standards, which are either listed with an “AS” tag for standards labeled AS No. 1 to AS No. 16, or with an “AU” tag for interim standards.

The proposal would thus eliminate the classification of interim standards, though the PCAOB would continue to update or improve those it is currently working on. It would not, however, change the existing requirements for performing and reporting on audits.

“It should come as no surprise to any professional person that auditing literature is extensive. As printed, these standards run to over 2,000 pages,” said PCAOB chairman James Doty at a board meeting yesterday. Navigating the audit standards in their current form, he noted, “can prove daunting.”

The current hybrid classification structure is “not very easy to use or navigate,” added Martin Baumann, chief auditor and director of professional standards at the PCAOB. “This project will create an orderly classification of our standards.”

Under the new proposal, all PCAOB standards would be grouped according to whether they fall under general auditing standards (which would be labeled in the 1,000 category), auditing procedures (labeled in the 2,000 category), auditor reporting, matters related to filings under federal laws securities laws, or other audit-associated matters.

“If more auditors find it easier to read the PCAOB standards and to consult them more frequently, this framework for reorganization will, in my life, have fulfilled an important purpose,” Doty noted.

The proposal should also have more appeal with instructors, according to PCAOB board member Jeanette Franzel. She hopes better categorizing will make the standards easier to use as a common reference guide. Currently, they are too complex for students and instructors, she believes.

Baumann also believes the plan would help audit professionals who may have been confused about the distinction between standards mandated by the PCAOB and those that are merely recommended by the American Institute of CPAs. The AICPA’s standards look similar to those of the PCAOB since the association also uses an “AU” abbreviation when describing the use of its standards, which are called “Statements on Auditing Standards” and go by a “SAS” tag.

The PCAOB is seeking feedback on whether the approach makes sense or if other changes need to be considered to improve audit quality. An online version will also be available for evaluation. Comments are due on the proposal by May 28.