SEC Approves PCAOB's Audit Reforms

The Securities and Exchange Commission has approved a slate of changes proposed by the Public Company Accounting Oversight Board (PCAOB) to overhaul audit standards and liability rules.

The SEC's stamp of approval covers three key PCAOB initiatives aimed at bolstering integrity and accountability in the profession.

First up is a brand new auditing standard that reaffirms the core responsibilities of auditors. Dubbed AS 1000, "General Responsibilities of the Auditor in Conducting an Audit," the standard consolidates fundamental principles like the duty to protect investor interests through independent, high-quality reports, as well as requirements around professional skepticism and ethics compliance.

"These are the bedrock obligations that all auditors must uphold," said SEC Chair Gary Gensler. "Codifying them into a single standard sends a clear message about the importance of auditor integrity."

PCAOB Chair Erica Y. Williams praised the SEC's approval of AS 1000, stating it "will help ensure that PCAOB standards are clear, consistent, and up to date when it comes to auditing fundamentals such as due professional care, professional skepticism, competence, and professional judgment."

The SEC also greenlit PCAOB amendments to existing standards governing the use of technology in audits. Updates to AS 1105 on audit evidence and AS 2301 on risk assessment aim to ensure auditors are properly managing and documenting the growing deployment of data analysis tools.

"As auditing grows more tech-savvy, it's critical the standards evolve to keep pace," commented SEC Chief Accountant Paul Munter. Williams noted these changes "reduce the risk that auditors who use technology-assisted analysis will issue an opinion without obtaining relevant and reliable audit evidence."

Perhaps the most significant reform approved by the SEC was an amendment to the PCAOB's Rule 3502, which oversees the liability of individual accounting professionals who contribute to their firm's violations.

The revised rule lowers the threshold for contributory liability from "recklessness" to the more common "negligence" standard, while maintaining the requirement of a "direct and substantial" contribution.

"Aligning the PCAOB's rule with other professional conduct standards is an important step," Munter explained. "It ensures auditors are held to the same reasonable care expectations as the rest of the industry."

Williams remarked that the Rule 3502 update "enables the PCAOB to hold associated persons accountable when they negligently, directly, and substantially contribute to firms' violations."

Taken together, these PCAOB updates represent a major modernization of audit regulations and oversight. For accounting firms and professionals, the changes underscore the need to continually enhance practices and mindsets to meet heightened regulatory scrutiny.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.