PCAOB to meet on transparency proposal

By Ken Tysiac

The PCAOB will hold a public meeting at 10 a.m. Tuesday to consider whether to adopt a new standard that would require a new form for naming the engagement partner and other firms participating in public company audits.

If approved, the standard would require firms to use a new PCAOB form, Auditor Reporting of Certain Audit Participants, which also would be known as “Form AP.” The form would be submitted electronically and be available to the public through the PCAOB website in a searchable database.

Audit firms would be required to submit the form shortly after filing the auditor’s report. The PCAOB came up with the idea of creating the new form after a previous proposal to disclose the name of the engagement partner in the auditor’s report met with resistance because of concerns about relevance and personal liability for auditors.

“Compared to disclosure in the auditor’s report, which the board proposed in 2013, the new form represents a middle-ground approach to balancing the benefits of such disclosure with the potential impact on auditors’ private liability and litigation risk,” Martin Baumann, the PCAOB’s chief auditor and director of professional standards, said Thursday at the AICPA Conference on Current SEC and PCAOB Developments in Washington.

Form AP also will include the names, locations, and extent of participation of other firms participating in the audit whose hours exceed 5% of total hours; and the aggregate percentage for all the hours of all the firms participating in the audit.

Baumann said the form is intended to increase transparency for investors. He cited a reverse merger case in which a U.S. audit firm signed the report but at least 90% of the audit work was done in China by a Chinese firm that the PCAOB is unable to inspect.

“That is not at all transparent to investors as to who really did the audit,” Baumann said. “Also, in the case of large multinational audits, 60% or 70% of the work could be done by a number of firms around the world who may have varying inspection reports.”

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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