Heads Up — PCAOB proposes new framework for reorganization of PCAOB auditing standards

Published on: 09 Apr 2013

Download PDFApril 9, 2013
Volume 20, Issue 11

by Megan Zietsman, Deloitte & Touche LLP; Jennifer Burns, Deloitte LLP; and Ashley Pruitt, Deloitte LLP


On March 26, 2013, the PCAOB issued a release1 that includes a proposed framework for the reorganization of PCAOB auditing standards. Under the proposed framework, PCAOB Auditing Standards 1–16 and PCAOB interim standards would be reorganized into a topical structure (based on the audit process) by using a four-digit sequential numbering scheme. In addition, conforming amendments would be made to related auditing standards — for example, certain auditing standards that would no longer be applicable under the proposed framework would be rescinded and the titles of other standards would be changed. The release further explains that the changes to PCAOB auditing standards resulting from the proposed reorganization are not expected to impose new, or substantively modify existing, audit requirements.

In a prepared statement given at the PCAOB’s March 26, 2013, open meeting held to approve the issuance of the release, PCAOB Chairman James R. Doty emphasized its importance, stating:

This release represents an important first step in making the PCAOB standards more available to auditors. . . . It is a start on making our standards more usable, more accessible, and more clearly aligned with the audit process. If more auditors find it easier to read the PCAOB standards and to consult them more frequently, this “Framework for Reorganization” will have fulfilled an important purpose.

This Heads Up provides an overview of the proposed framework and related amendments.

Proposed Framework for Reorganization of PCAOB Auditing Standards

Framework Structure

The proposed framework suggests topical categories and subcategories for organizing the PCAOB’s auditing standards and would assign a four-digit number to each of these categories. The following table summarizes the proposed reorganization and numbering scheme:


Topical Category




General Auditing Standards

Standards on broad auditing principles, concepts, activities, and communications.

  • 1000 Series: General Principles and Responsibilities.
  • 1100 Series: General Concepts.
  • 1200 Series: General Activities.
  • 1300 Series: Auditor Communications.


Audit Procedures

Standards for planning and performing audit procedures and obtaining audit evidence.

  • 2100 Series: Audit Planning and Risk Assessment.
  • 2200 Series: Audit Procedures in Response to Risks — Nature, Timing, and Extent.
  • 2300 Series: Auditing Internal Control Over Financial Reporting.
  • 2400 Series: Audit Procedures for Specific Aspects of the Audit.
  • 2500 Series: Audit Procedures for Certain Accounts or Disclosures.
  • 2600 Series: Special Topics.
  • 2700 Series: Auditor’s Responsibilities Regarding Other Information.
  • 2800 Series: Concluding Audit Procedures.
  • 2900 Series: Post-Audit Matters.


Auditor Reporting

Standards for auditors’ reports.

  • 3100 Series: Reporting on Audits of Financial Statements.
  • 33002 Series: Other Reporting Topics.


Matters Relating to Filings Under Federal Securities Laws

Standards on certain auditor responsibilities related to SEC filings for securities offerings and reviews of interim financial reporting.

Not specified.


Other Matters Associated With Audits

Standards for other work performed in conjunction with an audit of an issuer or a broker or dealer.

Not specified.

The proposed framework and numerical sequence will not affect current paragraph numbering in each auditing standard. However, the label “interim standards” in reference to the PCAOB AU standards will be eliminated.4 In addition, the four-digit numbering scheme would be used for new auditing standards in lieu of the old 1–16 numbering style. The PCAOB explained, however, that the proposed framework would result neither in redrafting of auditing standards nor in corrections of inaccurate cross-references or incorrect links. Rather, its scope would be limited to “reordering and renumbering standards in their entirety,” and any necessary technical changes would be considered in later phases of this project or in future standard-setting projects.

Editor’s Note: The Board considered three alternatives5 in developing the proposal:

  1. Continue to issue sequentially numbered standards until all interim standards are replaced.
  2. Retain the current organizational structure of the interim standards and modify the Board-issued standards by assigning section numbers to conform with the interim standards structure.
  3. Adopt the organizational structure used by other standard setters such as the IAASB and ASB.6

The release explains the Board’s rationale for its selected approach. In summary, the Board acknowledges the effort and time it will take for all the interim standards to be replaced and that it wants to take action now to improve the usability of its standards. The Board also explains that using the same organizational structure as other standard setters would involve what the Board views as substantial revisions to existing PCAOB standards. For example, certain PCAOB standards currently contain content that is related to multiple sections in the IAASB and ASB organizational structure; therefore, these PCAOB standards would need to be dispersed throughout different sections if the IAASB and ASB structure was used. The Board also points out that it wishes to preserve certain intentional differences between the organizational structure of its risk assessment standards and the organizational structure of the IAASB’s and ASB’s standards. For example, the consideration of risks of material misstatement due to fraud and the auditor’s responses are incorporated into the PCAOB’s risk assessment standards instead of being aggregated into one standard as they are in the IAASB and ASB standards.

The release would retain substantially all auditing interpretations related to the PCAOB’s interim standards and other interpretive publications issued by the PCAOB.7 However, under the new framework, auditing interpretations would be separate from auditing standards. Auditing interpretations, including those related to both interim standards and PCAOB standards, would remain on the Board’s Web site.8

In addition, the release would retain substantially all of the appendixes to interim standards referred to as a form of “interpretive publication” under AU Section 150.9 In a manner consistent with the presentation of appendixes to Board-issued standards, the Board proposes to continue to present the appendixes together with the corresponding auditing standard.

Benefits and Costs

During the open meeting, PCAOB board members noted several benefits of the proposed framework, including its:

  • Improved usability and accessibility.
  • Clearer alignment with the audit process.
  • Facilitation of the ability to compare and cross-reference to other standards (ASB, IAASB).10

According to the release, anticipated costs for registered accounting firms related to the proposed reorganization would include “updating references within firm methodologies, related reference materials, and practice aids to reflect the new citations to PCAOB auditing standards.” In a prepared statement at the open meeting, board member Lewis H. Ferguson stated the following regarding the release’s list of economic considerations related to implementation:

[W]e have also been mindful of the possible costs and benefits of the new codification as well as its potential effects on efficiency, competition and capital formation . . . . [I]n the longer run these temporary inconveniences should be more than overcome by improved usability.

The PCAOB believes that the cost considerations would not be different for audits of emerging growth companies (EGCs), since the proposed framework and related amendments are not expected to impose additional requirements on auditors or substantively change standards. However, the Board is requesting feedback on how the proposed framework may affect EGCs, particularly issues related to efficiency, competition, and capital formation.

Application to Audits of Broker-Dealers

If the SEC updates its rules to make PCAOB standards applicable to audits of broker-dealers, the proposed framework for PCAOB standards will apply to all audits, including audits of broker-dealers. The Board is seeking comments on issues specific to broker-dealers that should be considered in the reorganization of the PCAOB’s standards.

Proposed Changes to PCAOB Standards

The release notes that to implement the proposed framework, the Board must make certain changes to its auditing standards. One of these changes would be to rescind five11 interim standards that it believes will no longer be applicable or relevant under the proposed framework. At the open meeting, the Board encouraged public commenters to consider the appropriateness of rescinding these five auditing standards and to identify any additional audit standards that should be considered for rescinding.

In addition, the release would amend the titles of six interim PCAOB standards without changing their substance. The rationale for the title change is to clarify each standard’s content.

Tables 1 and 2 in the appendix of this Heads Up list the five interim standards proposed for rescission and the six interim standards proposed for title revision.

Next Steps and Request for Public Comment

The release notes that the proposed framework is the first step in a multiyear, multiphase project. After considering feedback on the first release, the Board intends to issue a second release; this subsequent release would contain the amendments necessary to implement the proposed framework. With the second release, the PCAOB is also planning to provide a “functioning online version” of the proposed reorganized audit standards. The timing of the second release has not been specified.

At the open meeting, the Board, in addition to soliciting feedback on the questions posed in the release, requested comments on the following:

  • Alternative views and approaches to the proposed structure.
  • Advantages and disadvantages of the proposed framework.
  • Additional standards that should be rescinded.
  • Recommendations to build useful online/interactive tools for the standards.

We encourage all interested parties to study the release and submit comments to the PCAOB. Comments should be submitted to the Office of the Secretary, PCAOB, 1666 K Street, N.W., Washington, D.C. 20006-2803. Comments also may be submitted by e-mail to comments@pcaobus.org or through the Board’s Web site at www.pcaobus.org. All comments should refer to PCAOB Rulemaking Docket Matter No. 040 in the subject or reference line and should be received by the Board no later than 5:00 p.m. (EDT) on May 28, 2013.


Table 1 below lists (1) the five12 standards that would be rescinded under the proposed framework and (2) the PCAOB’s rationale for rescinding.

Table 1

Interim Auditing Standard

Rationale to Rescind

AU Section 150, Generally Accepted Auditing Standards

Subsequent rulemaking activities after the adoption of interim auditing standards have superseded, in effect, most of the provisions in
AU Section 150.

AU Section 201, Nature of the General Standards

This standard does not impose any requirements on auditors and does not appear to be needed.

AU Section 410, Adherence to Generally Accepted Accounting Principles13

Requirements related to the reporting standard required in AU Section 410 are already covered in AU Section 508, Reports on Audited Financial Statements.

AU Section 532, Restricting the Use of an Auditor’s Report

Requirements for restricting the use of specific reports are currently covered in individual standards for the respective reports (e.g., internal control communications are covered in AU Section 325, Communications About Control Deficiencies in an Audit of Financial Statements).

AU Section 901, Public Warehouses — Controls and Auditing Procedures for Goods Held

Specific requirements regarding inventory held in public warehouses are set forth in AU Section 331, Inventories.

Table 2 below (1) lists current interim standards for which a new title has been proposed and (2) the proposed title, including the new auditing standard (AS) reference under the proposed framework.

Table 2

Current AU Section and Title

Proposed AS Reference and Title

AU Section 161, The Relationship of Generally Accepted Auditing Standards to Quality Control Standards

AS 1103, Relationship of Auditing Standards to Quality Control Standards

AU Section 544, Lack of Conformity With Generally Accepted Accounting Principles

AS 3311, Special Reports on Regulated Companies

AU Section 558, Required Supplementary Information

AS 2702, Unaudited Supplementary Information Included in Audited Financial Statements

AU Section 711, Filings Under Federal Securities Statutes

AS 4101, Responsibilities Regarding Filings Under Federal Securities Statutes

AU Section 722, Interim Financial Information

AS 4102, Reviews of Interim Financial Information

AU Section 801, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance

AS 6103, Compliance Auditing Considerations in Audits of Recipients of Governmental Financial Assistance



1 PCAOB Release No. 2013-002, Proposed Framework for Reorganization of PCAOB Auditing Standards and Related Amendments to PCAOB Auditing Standards and Rules.

2 The 3200 Series within the proposed framework has been “reserved.”

3 The 5000 Section within the proposed framework has been “reserved.”

4 At its inception, the PCAOB adopted the auditing standards promulgated by the AICPA’s Auditing Standards Board as they existed as of April 16, 2003. These standards are currently referred to as PCAOB interim standards. Because the PCAOB has issued new standards, it has also made conforming amendments to these PCAOB interim standards and has rescinded those that were superseded by newer PCAOB standards.

5 See Section II.B of the release for further details on the consideration of alternatives.

6 For a comparison of the proposed Auditing Standard references, current PCAOB references, IAASB standards, and ASB standards, see Appendix 3.

7 See Appendix 1 of the release for a list of standards included in the reorganization.

8 See http://pcaobus.org/Standards/Pages/Guidance.aspx.

9 PCAOB AU Section 150, Generally Accepted Auditing Standards. See, for example, PCAOB AU Section 316, which includes an appendix containing examples of fraud risk factors.

10 See footnote 6.

11 Interim auditing standard AU Section 534 and its related auditing interpretation, AU Section 9534, are not included in the proposed reorganization. According to the release, “it does not apply to the audit of an issuer or broker or dealer.”

12 See footnote 11.

13 According to the release, “If AU sec. 410 is rescinded, the related auditing interpretation, AU sec. 9410, Adherence to Generally Accepted Accounting Principles: Auditing Interpretations of Section 410, also would be rescinded.”


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