Proposed changes would strengthen auditor requirements at the possible expense of companies and duplication of other regulations.
08/15/2023 11:10 A.M.
2.5 minute read
On behalf of its members that are publicly traded companies, ACA International has signed on to comments (PDF) led by the U.S. Chamber of Commerce on proposed amendments to audit standards used for those companies related to noncompliance with laws and regulations.
The proposal (PDF) comes from the Public Company Accounting Oversight Board (PCAOB) to “amend PCAOB auditing standards related to the auditor’s responsibility for considering a company’s noncompliance with laws and regulations, including fraud,” according to a news release.
The PCAOB seeks to “strengthen auditor requirements to identify, evaluate, and communicate possible or actual noncompliance with laws and regulations.”
“By catching and communicating noncompliance sooner, auditors can help companies course correct and better protect investors from risk,” said PCAOB Chair Erica Y. Williams in the news release.
However, the comments from the U.S. Chamber of Commerce and a coalition of business trade associations argue the proposed changes would lower audit quality and make the process more complex, increasing the cost and scope without a clear benefit to investors.
“The proposal outlines a series of complex duties, without adequate justification, that are not encompassed within the audit and therefore are beyond the remit of the PCAOB,” according to a news release from the Chamber.
Those proposed duties include, according to PCAOB:
- Identify laws and regulations that apply to the company and could have a significant impact on financial statements due to noncompliance.
- Strengthen requirements in the auditor’s evaluation for noncompliance and, if noncompliance occurs, the possible effects on financial statements and other components of the audit.
- Require the auditor to communicate to management and the audit committee when they learn there is noncompliance with laws or regulations.
“By requiring auditors to identify and communicate noncompliance sooner, the proposed amendments, if adopted, would encourage companies to take more timely remedial actions and thereby reduce investor harm caused by legal and regulatory penalties. Another potential benefit would be to lower the likelihood that financial statements are materially misstated due to noncompliance with laws and regulations,” the PCAOB reports in the news release.
The Chamber’s comments also note the proposal lacks precise terminology in the auditor requirements and that it is turning the financial statement audits into expansive examinations of possible noncompliance.
“By requiring auditors to identify and communicate noncompliance sooner, the proposed amendments, if adopted, would encourage companies to take more timely remedial actions and thereby reduce investor harm caused by legal and regulatory penalties. Another potential benefit would be to lower the likelihood that financial statements are materially misstated due to noncompliance with laws and regulations,” according to the comments.
The proposal is duplicative of existing internal company processes and auditors’ work.
“U.S. companies already have existing and stringent responsibilities for compliance with all applicable laws and regulations, as well as a series of appropriate checks against noncompliance. Various federal and state regulatory authorities in the United States have a responsibility to examine, monitor and, where appropriate, bring enforcement actions against companies that do not adhere to laws and regulations,” the Chamber’s comments state.
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