Audit firms’ quality controls will be the subject of PCAOB discussion in 2014 that could lead to a new auditing standard, board Chief Auditor and Director of Professional Standards Martin Baumann said Tuesday.
The PCAOB plans to issue a concept release seeking comment on ways to address audit firm quality controls. Baumann said at the AICPA Conference on Current SEC and PCAOB Developments that current quality-control standards do not appropriately address several matters that are important to audit quality.
- Tone at the top.
- Risk assessment and response to risk.
- Accountability and supervisory activities at the top of the firm.
- Application within the firm of professional skepticism.
- Alignment of individual incentives with audit quality objectives.
- Remediation and root-cause analysis.
Baumann said significant changes have occurred since the existing interim quality-control standards were issued, including enactment of the Sarbanes-Oxley Act. He said deficiencies identified in PCAOB inspections also indicate a need to explore the topic.
“We are working on a concept release with a framework that represents a holistic approach to audit firm quality controls,” Baumann said. “This is a very important project which I believe holds the promise of potentially significant improvements to audit quality.”
In addition, the PCAOB plans to propose a standard in late 2014 on auditing accounting estimates, including fair value measurements. Baumann said the proposal would be designed to replace a number of interim standards.
— Ken Tysiac ( firstname.lastname@example.org ) is a JofA senior editor.