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Conference Plumbs Changing Audit Environment
PCAOB Regulations to Favor the Investor

By Sanjay Paranandi, Public Relations Specialist

Auditors should embrace their role in a new regulatory environment that will focus on protecting investors above other interests, a prominent regulator said during a New York State Society of CPAs conference.

“Protection of the investor is our primary goal,” Douglas Carmichael, the chief auditor and director of professional standards of the Public Company Accounting Oversight Board, said at the Society’s Oct. 30 Auditing Conference.

“My hope is that auditors will respond to their new role as an essential contributor to the development of professional standards,” Carmichael added. “And that the result will be a renewed spirit of professionalism and a dedication to the auditor’s role of protecting investors and furthering the public interest in the preparation of informative, fair and accurate independent audits.”

Close to 150 people packed the Helmsley Hotel in Manhattan to hear Carmichael speak about the role of the PCAOB in setting audit standards. He covered the PCAOB’s experience in implementing audit and independence standards, peer review and the potential effects of regulations charging the new board with oversight and discipline for auditors of public companies. Carmichael said the PCAOB’s activities will include a review of existing standards with an emphasis on immediate improvement in auditing quality.

“The requirements will be more specific and definitive with some unconditional obligations,” Carmichael said.

For example, walkthroughs are required procedures and should be made cradle-to-grave, demanding attention to treatment of errors, exceptions and unusual items. This step can reduce the number of restatements, he believes.

Carmichael reflected on the PCAOB’s first proposed standard, “An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.” The basic feature of the proposed auditing standard is one integrated standard on an integrated audit of internal control and financial statements. The objective of the audit of internal control is to express an opinion on management’s assessment of effectiveness.

“My hope is that the direction of the effect on professionalism of auditors will be the opposite of what some see as the effect of losing accounting standard setting,” Carmichael said.

The conference also included an update from Gene L. Dodaro, chief operating officer for the U.S. General Accounting Office, who discussed how the Sarbanes-Oxley Act and the PCAOB affect audits performed in accordance with government auditing standards.

New York State Deputy Comptroller Lynn Gilmore Canton later gave a presentation on the state comptroller’s responsibilities, such as managing the state’s assets and conducting audits of state agencies, public authorities and all local governments, including New York City. Canton painted a bleak picture of New York’s fiscal condition as state debt has grown to $21.8 billion—more than any other state—while job growth is about half the national average and state and local taxes remain the highest in the nation.

Other speakers included Charles E. Landes, director of audit and attest standards for the American Institute of CPAs, who discussed the role of the Institute in establishing audit, independence and quality control standards; Douglas Reynolds, of Grant Thornton LLP, who led a discussion on the effects of the changes in the current audit environment; and Robert Sack of the University of Virginia, who gave a presentation on ethics. Finally, Robert Colson, editor-in-chief of The CPA Journal, led a panel discussion on the changing audit environment with Margaret A. Wood, chair of the Society’s Auditing Standards and Procedures Committee.