The PCAOB released for comment a proposed auditing standard (tinyurl.com/29bayna) that it says would update and expand the requirements related to the auditor’s use of confirmations, requiring a high level of evidence. In a statement issued with the proposed new standard, PCAOB Acting Chairman Daniel Goelzer said the proposal modernizes the current confirmation standard, AU section 330, The Confirmation Process, and strengthens the confirmation requirements to better protect investors and other users of audited financial statements. His statement is available at tinyurl.com/3567guv.
The proposal was developed based in part on feedback received on Concept Release on Possible Revisions to the PCAOB’s Standard on Audit Confirmations (tinyurl.com/2dsyq2q), which the PCAOB released in April 2009, and through public discussion of the board’s Standing Advisory Group. The board also considered International Standard on Auditing 505, External Confirmations, issued by the International Auditing and Assurance Standards Board, and the Proposed Statement on Auditing Standards, External Confirmations (tinyurl.com/2b5s8rh), of the AICPA’s Auditing Standards Board.
The proposal’s changes fall into three categories:
- Auditors would be required to confirm a wider range of accounts that represent money owed to the company, including receivables “from credit sales, loans, or other transactions.” Currently receivables only need to be confirmed if they arise “from the sale of goods or services in the normal course of business.” The proposal also would require confirmation procedures in response to significant risks arising from other kinds of transactions or arrangements with third parties, if the relevant assertions can be adequately addressed by confirmation. The proposal includes a new requirement to confirm cash held with financial institutions. The PCAOB said fictitious bank accounts have been present in several notorious frauds.
- It recognizes the prevalence of electronic communications, electronic recordkeeping and the Internet. It would also reflect the increasing frequency with which respondents include disclaimers, limitations and other legal boilerplate in their responses.
- It would more explicitly incorporate consideration of the risk of error or fraud into the selection, design and planning of confirmation procedures.
The proposal also requires the auditor to evaluate the effect of disclaimers and restrictive language on the reliability of a confirmation response. The comment period closed Sept. 13.
The AICPA’s Audit and Attest Standards staff has issued Technical Practice Aid 8700.03, “Auditor’s Responsibilities for Subsequent Events Relative to a Conduit Debt Obligor.” The TPA provides guidance on the effect of FASB Accounting Standards Update no. 2010-09 on ASC Topic 855, Subsequent Events, regarding the auditor’s responsibilities for subsequent events relative to a conduit debt obligor and the date of the auditor’s report. It is available at tinyurl.com/2b8gqya.
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