Auditing

October 1, 2013

  Fees for external audits of financial statements paid by U.S. public and private companies rose in fiscal year 2012 over the previous year, according to a new survey report.

Audit fees paid by 87 public companies averaged $4.5 million in FY 2012, according to a Financial Executives International (FEI) report. That represented a 4% increase over the audit fees those same companies paid in the previous fiscal year.

Private companies paid an average of $147,800 in total audit fees in FY 2012, a 3% increase over their FY 2011 audit fees. Executives from 118 private companies participated in the survey.

It was the third straight year of fee increases reported by public companies in the annual survey, which previously showed increases of 5% in FY 2011 and 2% in FY 2010 after a fee decrease was reported in FY 2009. Private companies saw fees rise 7% in FY 2011, and reported that their year-over-year audit fees remained essentially unchanged in FY 2010 and FY 2009.


  The AICPA Auditing Standards Board (ASB) is proposing changes to its attestation standards as part of its clarity project.

An exposure draft, available at tinyurl.com/odjv7y9, would clarify and recodify certain Statements on Standards for Attestation Engagements (SSAEs) in the AICPA’s Professional Standards.

The ASB has undertaken the clarity project to address concerns over the clarity, length, and complexity of its standards. A project to clarify the Statements on Auditing Standards has been substantially completed, and the ASB has begun clarifying the SSAEs.

SSAEs that provide a framework for performing and reporting on attestation engagements are the subject of the ED and will be clarified and recoded first. AT Sections 20, 50, 101, and 201 would be superseded by the proposed changes.

Additional SSAEs included in subject-matter specific AT Sections 301–801 will have changes proposed in an ED at a later date. The ASB anticipates that the proposed guidance in both EDs would take effect at the same time, and does not expect the effective date to be for reports dated before Dec. 15, 2014.

Although many of the proposed changes are not substantive, a few important changes are proposed. These include:

  • For all examination and review engagements, a practitioner would be required to obtain from the responsible party a written assertion about the measurement or evaluation of the subject matter against the applicable criteria.
  • Representation letters would be required in all examination and review engagements.
  • Practitioners would be required to obtain a more in-depth understanding of the development of the subject matter than currently is required. This change is proposed to help practitioners better identify the risks of material misstatement in an examination engagement.
  • A requirement that when the engaging or responsible party imposes restrictions that significantly limit the scope of the engagement, the practitioner should decide whether to express a qualified opinion, disclaim an opinion, or withdraw from the engagement when withdrawal is possible under applicable regulations. Currently, the practitioner’s options in those circumstances are to disclaim an opinion or withdraw from the engagement.


Comments are requested by Oct. 24 and should be addressed to Sherry Hazel at shazel@aicpa.org.


  The SEC approved rule amendments that strengthen audit requirements for broker-dealers.

The amendments are intended to increase protections for investors whose money and securities are turned over to SEC-registered broker-dealers. The final rules are available at tinyurl.com/pxvgy5q.

Broker-dealers are required by previous rules to file annual reports with the SEC and the self-regulatory organization (SRO) designated to examine that broker-dealer that contain financial statements audited by a PCAOB-registered independent public accountant. The new rule amendments require:

  • Broker-dealers that have custody of customers’ assets to file a “compliance report” with the SEC to verify that they are complying with broker-dealer capital requirements, protecting customer assets, and sending periodic statements to customers.
  • Broker-dealers that do not have custody of customers’ assets to file an “exemption report” with the SEC citing their exemption from requirements for carrying broker-dealers.


In both cases, the broker-dealer is required to engage a PCAOB-registered independent public accountant. The accountant would prepare a report based on an examination of certain statements in the compliance report, or a report based on a review of certain statements in the exemption report, depending on whether the broker-dealer has custody of customers’ assets.

The examination or review of the newly required reports—and the examination of the broker-dealer’s financial statements—must be conducted according to PCAOB standards. The accountant’s report based on an examination of the compliance report will satisfy the annual internal control audit report requirement for investment advisers.

Requiring reports under PCAOB standards is a significant change for auditors because broker-dealer reports have been prepared under generally accepted auditing standards (GAAS).

Broker-dealers registered with the Securities Investor Protection Corporation (SIPC) also are required to file an annual report with the SIPC.

In addition, the amendments require a broker-dealer to file a new quarterly Form Custody report containing information about whether and how custody of customers’ securities and cash is maintained. The objective of these reports is to establish a custody profile for broker-dealers that can be used as a starting point by SEC and SRO staff conducting routine inspections and examinations of broker-dealers.

The amendments also require broker-dealers to allow SEC or SRO staff to review the work papers of the independent public accountant, if requested in writing, for purposes of an examination of the broker-dealer. Broker-dealers are required to allow the accountant to discuss findings with the examiners. This amendment applies to broker-dealers regardless of whether they have custody of their clients’ assets.

The amendments regarding the Form Custody report and the requirement to file annual reports with the SIPC take effect Dec. 31. The effective date for the requirements relating to broker-dealer annual reports is June 1, 2014.

The commission also amended financial responsibility rules for broker-dealers. The net capital, customer protection, books and records, and notification rules all were changed with the intent of protecting broker-dealer customers and strengthening the SEC’s monitoring ability.

The financial responsibility rule amendments take effect 60 days after their publication in the Federal Register. The final rules are available at tinyurl.com/mpqsoqh.


  Six possible elements of audit quality are highlighted in a report by the Center for Audit Quality (CAQ).

The report describes elements of audit quality that audit firms could consider in refining or developing their own reporting regarding their public company audit practices. The elements are:

  • Firm leadership and tone at the top of the audit firm.
  • Independence, objectivity, and skepticism.
  • Audit process, methodology, and performance.
  • Professional development and competency.
  • Monitoring.
  • Firm organization and structure.


“The CAQ and its members believe that audit quality reporting can foster greater confidence in the public company audit process by assisting financial statement users, audit committee members, and other stakeholders in understanding how an audit firm’s management and operations support the performance of high-quality audits,” CAQ Executive Director Cindy Fornelli said in a news release.

The CAQ is affiliated with the AICPA. The report is available at tinyurl.com/p6kr899.

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