The Public Company Accounting Oversight Board (PCAOB) is moving forward with its plan to  reorganize and codify its existing auditing standards into a format that it hopes will be easier to navigate.

The board first proposed the changes—which do not alter the standards themselves or impose new requirements on auditors—in a 2013 exposure draft. It approved the reorganization during an open meeting on March 31.

The current state of the rules is a byproduct of the board’s early years. In 2003, shortly after the PCAOB was formed, the board approved the use of a set of interim standards that had originally been issued by the AICPA’s Auditing Standards Board (ASB). It also retained the  ASB’s topical organizational and reference numbering system, or “AU sections.” However, as time went on, the PCAOB’s standards began to diverge more and more from the interim ones: Since 2003, the board has issued 16 new standards of its own, which have superseded 10 of the interim standards, with the remainder amended and revised in varying degrees. Though the PCAOB’s auditing standards, or “AS standards,” were numbered sequentially in the order in which they were issued, they existed side by side with the AU sections.

In a statement, PCAOB Chair James R. Doty noted that, under the current setup, auditors had to jump back and forth between the interim standards and the PCAOB standards in the literature. As a result, he said, the board felt that the standards needed to be reorganized into a singular set with a common numbering system, and categorized in a way “that makes professional practice easier.” 

According to the PCAOB, that means that, going forward, all of the standards will use a four-digit numbering system, carry the prefix “AS” and be organized by topic, in a way that is meant to reflect the order in which auditors work through their process. Broadly, those topics are—

1. General Auditing Standards—standards on broad auditing principles, concepts, activities and communications;
2. Audit Procedures—standards for planning and performing audit procedures and for obtaining audit evidence;
3. Auditor Reporting—standards for auditors’ reports;
4. Matters Relating to Filings Under Federal Securities Laws—standards on certain auditor responsibilities relating to U.S. Securities and Exchange Commission (SEC) filings for securities offerings and reviews of interim financial information; and
5. Other Matters Associated with Audits—standards for other work performed in conjunction with an audit. 

The PCAOB will also remove references to superseded standards, as well as other language and references that no longer apply.

In a 2013 comment letter, the NYSSCPA largely agreed with this tactic, saying that placing the standards “in a more logical sequence, based primarily on the normal chronology of the audit process … would be the best alternative and be of substantial value to users.” Overall, the Society said, the adoption of the proposal would likely have positive effects.

Indeed, Tammy E. Straus, a member of the  Society’s Auditing Standards Committee and one of the comment letter’s authors, said the board’s final product will be a vast improvement.

“It’s much easier to research topics when they’re organized by subject as opposed to the way they are now, where you have to know what you’re looking for already,” she explained.

She also prefers the new four-digit numbering system, adding that “the current process of having three numbers was confusing,” given that the existing AICPA auditing standards also use three numbers, but a different set of them.

Julian E. Jacoby, a current member and past chair of the Auditing Standards Committee who also contributed to the Society’s 2013 comment letter, was less enthusiastic, however, about the change in numbering. He said that he wished the PCAOB’s new system was more integrated  with the literature of other standards-setting bodies, namely the AICPA and the International Auditing and Assurance Standards Board (IAASB), which also uses a three-digit system.

“It might have been easier just to use the same categories and numbering system [as the AICPA and IAASB] with some differential built in, perhaps a preface or lettering in front of it,” he said. “Now we have a situation where we have three standards, two of which conform to each other and the third which does not.”

He added that it was unfortunate the codification dropped references to the AICPA’s audit guides, which point to relevant guidance in official standards and note any recent developments. The guides, he said, provide a significant amount of detail and have, in the past, been very useful.

Despite these reservations, Jacoby sees the new codification as a positive step, noting that it will still make it easier for auditors to navigate their way through the literature.

If approved by the SEC, which oversees the PCAOB, the new codification will become effective as of Dec. 31, 2016. 

cgaetano@nysscpa.org