PCAOB amends requirements for audits involving other auditors

ARTICLE | July 12, 2022

Authored by RSM US LLP

The Public Company Accounting Oversight Board (PCAOB) has issued amendments to its standards to enhance the quality of audits for circumstances where an accounting firm (“lead auditor”) issues an auditor’s report that has involved other accounting firms and individual auditors outside of the lead auditor’s firm (“other auditors”).

Greater specificity in the revised and enhanced requirements for the lead auditor will help focus the auditor on the unique aspects of supervising other auditors, with a focus on more involvement by the lead auditor on those areas of greatest risk and a more robust two-way communication between the lead auditor and other auditors. Among several new requirements, the PCAOB included a requirement for the engagement partner to determine whether the participation of his or her firm is sufficient to carry out the responsibilities of a lead auditor and report as such on the company’s financial statements. In addition, there is a requirement for the engagement quality reviewer to review this determination. Further, the lead auditor will need to perform certain procedures related to the other auditors’ knowledge, skill, ability, and compliance with independence and ethics requirements, as well as inform the other auditor in writing of certain matters, including all identified risks of material misstatement associated with the location or business unit.

The revisions and enhancements have resulted in amendments to a number of PCAOB standards, including Auditing Standard (AS) 1015, Due Professional Care in the Performance of Work; AS 1105, Audit Evidence; AS 1201, Supervision of the Audit Engagement; AS 1215, Audit Documentation; AS 1220, Engagement Quality Review; and AS 2101, Audit Planning.

A new standard, AS 1206, Dividing Responsibility for the Audit with Another Accounting Firm, has been introduced to apply where the lead auditor divides responsibility for a portion of the audit with another audit firm (the “referred-to auditor”) and therefore does not supervise the work of that auditor. This new standard replaces AS 1205, Part of the Audit Performed by Other Independent Auditors, related to dividing responsibility for the audit with another accounting firm. The new standard enhances the requirements for the lead auditor in relation to referred-to auditors and addresses:

  • Audit procedures on the consolidation or combination of financial statements of the business units audited by the referred-to auditor
  • Written representations from the referred-to auditor regarding independence and licensing requirements
  • Disclosure of the magnitude of the proportion of the financial statements and, if applicable, the internal controls, audited by the referred-to auditor

Subject to approval by the SEC, the amendments will be effective for audits of financial statements for fiscal years ending on or after December 15, 2024.

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This article was written by RSM US LLP and originally appeared on 2022-07-12.
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