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| May 2004 | The
Monthly Newspaper of the NYSSCPA |
Vol.
7, No.8 |
SEC Takes Up PCAOB Standard
Auditing Standard No. 1 Would Switch from GAAS
By
Simon
Eskow
The
Securities and Exchange Commission in April headed toward adopting the
Public Company Accounting Oversight Board’s first auditing standard.
The SEC on April 7 published notice of the PCAOB standard on wording in audit reports. Publication of the standard initiated a 21-day comment period.
Auditing Standard No. 1, which the PCAOB approved in December, would require auditor reports to state that an engagement was performed in accordance with the standards of the PCAOB. Statements in reports prior to this standard have referred to generally accepted auditing standards (GAAS).
The SEC said it would simultaneously issue an interpretative statement if and when it approves the new standard. The statement would drive home “(the) Commission’s position regarding references in the securities laws, Commission rules and interpretations and staff guidance to GAAS…,” according to an SEC press release.
The interpretive statement would also address requirements to follow Commission rules and whether a prior report previously filed under GAAS would need to be revised to refer to the PCAOB standards.
Observers didn’t expect the announcement to generate substantial comment, describing the standard as a clarification for financial statement users that auditors of public companies comply with PCAOB standards and not GAAS.
Members of the New York State Society of CPAs’ SEC Practice Committee indicated at the time of this writing that they were not likely to submit a statement during the comment period.
“The intent there is to create a line of demarcation between what is an audit in accordance with AICPA (American Institute of CPAs) audit standards and what is in accordance with PCAOB standards,” committee chair George Victor said. “It’s basically innocuous. It’s just clarifying and putting the SEC consistent with the PCAOB.”
The PCAOB has issued two standards to date. Auditing Standard No. 2, which the PCAOB approved in March, would require auditors to form an opinion on management’s assessment of a company’s internal controls. Under this standard, auditors must base their opinion on evaluation and testing of a company’s internal control process, the work done by others and the effectiveness of the controls. The opinion then must be included in the company’s financial statements. The SEC has yet to approve Standard No. 2.
When approved, registrants with the PCAOB must include the opinion with financial statements, beginning in November.
