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Journal entry — PCAOB approves reorganization of its auditing standards

Published on: Apr 01, 2015

Yesterday, the PCAOB issued a release1 approving the reorganization of its auditing standards.2 Under the amendments, PCAOB-issued auditing standards will be integrated with PCAOB interim standards3 by using a topical structure and a uniform four-digit numbering system. The release notes that the new structure “generally follows the flow of the audit process” and is intended to enhance the usability and navigability of — and thus to facilitate compliance with — the PCAOB’s auditing standards. In addition, the release indicates that future auditing standards “will be issued as new or replacement sections and paragraphs” within the new topical organization and that PCAOB standards will no longer be sequentially numbered.

Under the reorganization, PCAOB standards and rules would be amended as follows:

  • Section numbers, cross-references, and titles of certain standards would be updated (e.g., AU Section 324, “Service Organizations,” would be renamed AS 2601, “Consideration of an Entity’s Use of a Service Organization,” and Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements,” would become AS 2201, “An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements”).
  • Certain interim auditing standards would be rescinded because the Board believes these are no longer necessary.4
  • Certain inoperative language or references would be eliminated.
  • Certain PCAOB rules would be updated to reflect the reorganized auditing standards.

The Board’s release points out that the reorganization does not “impose new requirements on auditors” or substantively modify existing audit requirements. As a result, the reorganization is not expected to affect how audits are performed or how conclusions are reported under PCAOB standards, including audits of emerging growth companies.

In addition, the Board plans to further enhance the presentation of standards as part of its future standard-setting activities (e.g., ensuring that the standards are written in a consistent manner, updating outdated GAAP references, and increasing the usability of the standards). The current release does not incorporate such improvements since they may result in more substantive changes to PCAOB auditing standards. 

Pending SEC approval, the amendments in the release will become effective as of December 31, 2016. Once approved by the SEC, the reorganized standards can be used before the effective date.

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1 PCAOB Release No. 2015-002, Reorganization of PCAOB Auditing Standards and Related Amendments to PCAOB Standards and Rules.

2 The PCAOB issued the original proposal for the reorganization of its auditing standards in March 2013 and a supplemental request for comment in May 2014. Also in May 2014, the Board released an online demonstration of the proposed structure for the reorganized standards.

3 In April 2003, the PCAOB adopted, as its interim standards, the AICPA auditing standards as they existed as of April 16, 2003. Over time, some of the interim standards have been replaced or amended by the 18 auditing standards the PCAOB has issued.

4 These interim standards include:
•      AU Section 150, “Generally Accepted Auditing Standards.”
•      AU Section 201, “Nature of the General Standards.”
•      AU Section 410, “Adherence to Generally Accepted Accounting Principles.”
•      AU Section 532, “Restricting the Use of an Auditor's Report.”
•      AU Section 901, “Public Warehouses — Controls and Auditing Procedures for Goods Held.”

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