Some VERY significant news from the PCAOB: Earlier this month, the board adopted a new auditing standard and various amendments to other auditing standards to strengthen auditor performance requirements in three challenging areas:
- Related party transactions;
- Significant unusual transactions; and
- A company’s financial relationships and transactions with its executive officers.
In a just-released Flash Report from Protiviti, we summarize the PCAOB’s new auditing standard and the board’s various amendments, along with the implications for auditors and companies.
The PCAOB’s intent in addressing these transactions and relationships is to improve existing standards by requiring additional procedures in each of these areas and provide direction to ensure the auditor’s approach to these areas is sufficiently risk-based and appropriately coordinated.
Of particular note, the requirements will be effective for calendar year 2015 audits, including interim periods (e.g., required for fiscal years beginning on or after December 15, 2014). They will apply to audits of companies listed on exchanges in the United States.
The significance of these requirements is that they address what the PCAOB considers to be insufficient work by auditors in these areas, based on the board’s inspections process. Accordingly, we can expect continued attention on the part of the inspections process, which will drive auditors to increase audit emphasis in these areas. In addition, these areas are quite pervasive, meaning every public company is likely to be affected.