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PCAOB issues supplemental request for comment on new requirements for a lead auditor’s use and supervision of other auditors

  • PCAOB (US Public Company Accounting Oversight Board) Image

Sep 27, 2017

The PCAOB has issued a supplemental request for comment on certain proposed revisions to its auditing standards regarding the auditor’s use and supervision of other auditors.

Specifically, the supplemental request for comment identifies revisions that would clarify the PCAOB’s 2016 proposal on audits involving other auditors. The PCAOB’s objective is to strengthen the requirements related to audits involving accounting firms and individual accountants that are not part of the accounting firm that issues the auditor’s report (i.e., “other auditors”).

The supplemental request for comment reflects the PCAOB’s analysis of comments received on the 2016 proposal. The Board is considering amending the 2016 proposal by:

  • Revising its provisions related to assessing the prospective lead auditors’ sufficiency of participation by expressly requiring consideration of the importance of the location or business units audited by the lead auditor.
  • Revising its provisions related to understanding the qualifications of the other auditor as well as the other auditor’s compliance with independence and ethics requirements by requiring the lead auditor to understand the other auditor’s process for determining compliance and the other auditor’s experience in applying the requirements (rather than understanding each other auditor’s knowledge of requirements).
  • Extending the requirements regarding the assessment of the knowledge, skill, and ability of the other auditor to include an inquiry by the lead auditor about the other auditor’s policies and procedures related to (1) training of firm personnel who work on audits performed under PCAOB standards and (2) assigning personnel to PCAOB audits, not just supervisory personnel.
  • Clarifying that the necessary level of detail in the other auditor’s documentation that is to be obtained and reviewed by the lead auditor should be determined by the lead auditor depending on the necessary extent of supervision of the other auditor’s work.
  • In audits that involve multiple tiers of the other auditors in which the other auditor may supervise the work of a second other auditor on the engagement, allowing the lead auditor to either (1) communicate the scope of work, tolerable misstatement, and risk of material misstatement to the second other auditor or (2) direct the other auditor to communicate that information under certain conditions.
  • In relatively rare circumstances in which financial statements of a company’s business unit audited by the other auditor are prepared on the basis of a financial reporting framework that differs from the framework used to prepare the company’s financial statements, allowing division of responsibility if (1) either the lead auditor or referred-to auditor audits the conversion adjustments and (2) the lead auditor’s report identifies who has audited the conversion adjustments.

Comments are due to the PCAOB by November 15, 2017. 

Next Steps

See Deloitte’s forthcoming Audit & Assurance Update, which will contain additional analysis of the PCAOB’s supplemental request for comment. For information about the PCAOB’s 2016 proposal, see Deloitte’s April 29, 2016, Audit & Assurance Update. For a summary of the May and November 2016 meetings of the PCAOB’s Standing Advisory Committee, at which the 2016 proposal was discussed, see Deloitte’s June 22, 2016, and December 9, 2016, Audit and Assurance Update.

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