October 27, 2006
Audit Standard #2 Revisions Discussed by PCAOB
Probably the biggest single contentious issue concerning SOX 404 has been the external auditor attestation. Disagreements between auditors and clients have been rumored to be close to fist fights over differences in interpretations of SOX 404 and AS2. This 1800 page document is exhaustive in its discussion of audit requirements.
Many areas of the standard such as Section 65 may be interpreted in many different ways and are frankly just obtuse and vague. So it is a good thing that the audit standard will be revised and soon, according the PCAOB.
What is a little disconcerting is that both the SEC and PCAOB issued May 2005 guidance for the registrants and auditors, respectively. But it still seems that auditors have continued to be too conservative in their approach, see excerpt below from cfo.com article, referenced above:
"In May 2005, the PCAOB issued a policy statement with guidance on how to implement the internal controls provision of the Sarbanes-Oxley Act, known as Section 404. The guidance recommended that auditors should use a top-down approach, starting with company-level controls and risks, and rely on the work of others (to avoid unnecessary, costly testing of controls). Those concepts will be incorporated into the amendment of the standard, said Ray.
"We've received a lot of feedback that a number of auditors are hesitant to implement the concepts and direction from [the May 2005 guidance] for fear they would violate the standard itself," explained Ray. Amending AS2 is the PCAOB's top priority in the coming year..."
Other complaints have stemmed from external auditors not using client documentation and recreating it at $300-$500 per hour. Additionally, the lack of clarity of what really is a "material weakness" etc. has been a great source of acrimony between client and auditor, to no one's benefit.
We will wait with great anticipation for the details of this revision. This is good news along with a new COSO framework for small companies. You have to give the SEC and PCAOB credit. They ask for feedback and they really try to come up with reasonable solutions.
Other governments could take lessons from the SEC on this topic.
The SEC requires transparency from registrants and they try to practice what they preach.
If your company is public in the US or Canada and wants to comply with Sarbanes-Oxley or MI 52-109 cost effectively, see http://www.issuescentral.com/ to learn more about Compliance Playbook(tm). For companies based in Canada listed on Canadian or US exchanges, see http://www.compliancepartner.ca/ to learn more about Compliance Partner(tm).
Many areas of the standard such as Section 65 may be interpreted in many different ways and are frankly just obtuse and vague. So it is a good thing that the audit standard will be revised and soon, according the PCAOB.
What is a little disconcerting is that both the SEC and PCAOB issued May 2005 guidance for the registrants and auditors, respectively. But it still seems that auditors have continued to be too conservative in their approach, see excerpt below from cfo.com article, referenced above:
"In May 2005, the PCAOB issued a policy statement with guidance on how to implement the internal controls provision of the Sarbanes-Oxley Act, known as Section 404. The guidance recommended that auditors should use a top-down approach, starting with company-level controls and risks, and rely on the work of others (to avoid unnecessary, costly testing of controls). Those concepts will be incorporated into the amendment of the standard, said Ray.
"We've received a lot of feedback that a number of auditors are hesitant to implement the concepts and direction from [the May 2005 guidance] for fear they would violate the standard itself," explained Ray. Amending AS2 is the PCAOB's top priority in the coming year..."
Other complaints have stemmed from external auditors not using client documentation and recreating it at $300-$500 per hour. Additionally, the lack of clarity of what really is a "material weakness" etc. has been a great source of acrimony between client and auditor, to no one's benefit.
We will wait with great anticipation for the details of this revision. This is good news along with a new COSO framework for small companies. You have to give the SEC and PCAOB credit. They ask for feedback and they really try to come up with reasonable solutions.
Other governments could take lessons from the SEC on this topic.
The SEC requires transparency from registrants and they try to practice what they preach.
If your company is public in the US or Canada and wants to comply with Sarbanes-Oxley or MI 52-109 cost effectively, see http://www.issuescentral.com/ to learn more about Compliance Playbook(tm). For companies based in Canada listed on Canadian or US exchanges, see http://www.compliancepartner.ca/ to learn more about Compliance Partner(tm).
