“ Stay Out of Trouble ” ( JofA, Aug.05, page 67) highlighted an important issue regarding the confusion over auditing standards for nonissuing organizations. Certainly, some of this confusion stems from the underlying intentions of Sarbanes-Oxley.
The act, hastily issued in response to the lack of accountability and transparency in the financial reporting process, aimed to draw focus to management and auditors. To that end, it has been effective. Post-legislation, there has been greater attention paid to the actions of accountants and management, imposing additional responsibility on them to do the right thing. Yet, Sarbanes-Oxley’s efficiency in attracting attention has inadvertently pushed other preexisting rules and standards out of the spotlight. This is especially true in nonissuing organizations, where standards were indistinct to begin with. Perhaps due to the sweeping scandals and spectacular failures upon which it arose, Sarbanes-Oxley and its creation, the PCAOB, have become widely known across all types of organizations. Ironically, nonissuing organizations now know more about PCAOB standards than they do about their own set of guidelines.
As the article asserts, it is important for auditors and their clients to know about the various sets of standards in existence. I would add only that in order to mitigate the confusion over the applicability of standards, it is just as important to become familiar with the standard-setting bodies. For instance, the more recently formed PCAOB has assumed rule-making responsibility from the AICPA’s Auditing Standards Board over public companies only. Organizations should be mindful of the three standard-making bodies in the United States, whose jurisdictions are as follows:
Public Company Accounting Oversight Board (PCAOB)
— Publicly traded companies.
AICPA’s Auditing Standards Board (ASB)
— Privately held companies.
— Not-for-profit organizations.
U.S. Government Accountability Office
— Federal, state and local governments.
— Not-for-profit organizations receiving federal funding.
Through clarifying the lines of responsibility for these standard-making bodies, it is hoped entities such as nonissuing organizations can become enlightened in their steps toward compliance.
In related news, the recently formed U.S. Auditing Standards Coordinating Forum, composed of representatives from the PCAOB, ASB and GAO, also seeks to reduce confusion over varying auditing standards. It is hoped this forum will be able to preserve the importance of ASB and GAO auditing standards for the appropriate organizations, while fostering the output of the PCAOB.
Staten Island, N.Y.