PCAOB reorganizes standards to follow flow of an audit

The PCAOB voted Tuesday to approve a reorganization of its auditing standards—an effort to make them easier to navigate and follow the flow of an audit.

Until this point, the board’s standards have consisted of a combination of two sets of standards: Those issued by the PCAOB and those that were originally issued by the AICPA Auditing Standards Board (ASB) but adopted by the PCAOB on an interim transitional basis.

“Having two groups of separately organized standards is not easy to navigate,” PCAOB Chief Auditor Martin Baumann said at an open meeting Tuesday.

The reorganization will place the PCAOB-issued standards and the ASB-issued standards into a single, topical structure with an integrated numbering system with a logical flow that generally follows the audit process.

Under the reorganization, future standards approved by the PCAOB will be issued either as a new section of the standards, or an update of an existing section.

The SEC must approve the reorganization before the standards are updated on the PCAOB’s website. If approved, the amendments will take effect as of Dec. 31, 2016. Upon approval by the SEC, the PCAOB’s website would be updated with the reorganized standards to allow audit firms to begin their transitions to the new numbering system.

A demonstration version that was issued in May is available on the board’s website. The PCAOB staff expects that the same search-and-navigate tools that are available in the demonstration version would be available when the reorganized standards are posted.

The standards will be grouped into the following topical categories:

• General auditing standards: Standards on broad auditing principles, concepts, activities, and communications.
• Audit procedures: Standards for planning and performing audit procedures and obtaining audit evidence.
• Auditor reporting: Standards for auditors’ reports.
• Matters relating to filings under federal securities laws: Standards on certain responsibilities relating to SEC filings for securities offerings and reviews of interim financial information.
• Other matters associated with audits: Standards for other work performed in conjunction with an audit.

The reorganization does not add requirements for auditors or substantially change existing requirements for performing and reporting on audits. The amendments also remove references to superseded PCAOB standards, as well as inoperative language and references.

PCAOB member Jay Hanson said the board still has work to do to update the standards and make sure they all are written similarly. He said references to outdated U.S. GAAP will remain in the reorganized standards. Some of those would have been easy to change and some would have been more difficult to correct, but the board needs to continue to work to eliminate outdated references, he said.

In addition, Hanson said, implementation guidance the board has issued over the years needs to be assembled in a more searchable, usable format. Other board members also said there is more work to be done.

“I view this as the first step in a long journey of updating our standards,” said PCAOB member Jeanette Franzel.

—Ken Tysiac is a JofA editorial director.