PCAOB White Paper Calls Attention to the Risk of Material Weaknesses at Emerging Growth Companies

Last week, the Public Company Accounting Oversight Board (PCAOB) released its semi-annual white paper providing general information about certain characteristics of emerging growth companies (EGCs). The PCAOB’s white paper provides a number of observations regarding EGCs, which we summarize in a just-released Flash Report published on Protiviti’s website. In our Flash Report, we also review the implications for EGCs that report material weaknesses in their internal control over financial reporting and offer guidance to affected organizations to help them avoid or overcome such findings.

PCAOB Adopts New Requirements for Related Party and Significant Unusual Transactions, and Executive Officer Financial Relationships/Transactions

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.


Keeping Pace with SOX Compliance – COSO, Costs and the PCAOB

Every year, one of Protiviti’s most highly anticipated studies is our Sarbanes-Oxley Compliance Survey, in which we assess the current state and maturity of SOX compliance in public companies, along with factors influencing their efforts and costs. In our 2014 survey, the results of which we released today, there are a number of notable takeaways suggesting that, as a result of the new COSO framework and PCAOB inspection reports, among other factors, new hurdles are emerging in the SOX compliance process.


Our key findings:

  • Companies are getting started, albeit slowly, with implementing the new COSO framework.
  • There is measurable fallout from the PCAOB’s inspection reports.
  • Compliance costs are going up but are still manageable for many.
  • Organizations continue to automate more processes and controls.

For more information and detailed survey results, I invite you to visit www.protiviti.com/SOXsurvey. Also, you can check out our infographic and video here.