US2016-16: PCAOB proposes new requirements for audits involving other auditors
In many audits, audit work is performed in support of the consolidated financial statements by auditors other than the firm issuing the report. The PCAOB’s proposal addresses the lead auditor’s responsibilities in overseeing those other auditors.
- Directing the lead auditor’s supervisory responsibilities to the areas of greatest risk.
- Making clear that, to act as lead auditor, an audit firm must itself audit a meaningful portion of the financial statements. The lead auditor ordinarily would need to audit the location at which the primary financial reporting decisions were made and the consolidated financial statements were prepared in order to address the risks related to those important judgments and activities, and a sufficient number of other locations to cover a greater portion of the risks on the audit than any other audit firm.
- Requiring more explicit procedures to prompt the lead auditor to bolster its involvement in the work of other auditors through enhanced communication, including requiring certain information to be in writing, and more robust evaluation of other auditors’ qualifications and work.
- Revise requirements for determining a firm's eligibility to serve as lead auditor.
- Require the lead auditor to gain an understanding of each other auditor’s knowledge of SEC and PCAOB independence and ethics requirements and their experience in applying the requirements
- Prescribe certain procedures to be performed by the lead auditor with respect to the supervision of other auditor’s work, including requiring the lead auditor to:
- Determine it will be able to communicate with the other auditors and gain access to their work papers. This includes audit documentation required to be retained today, but also additional items the lead auditor determines is needed to meet the requirements. For example, the lead auditor may request additional information for review with respect to the work performed by less experienced auditors, or with respect to an area of heightened risk of material misstatement.
- Inform the other auditor of the scope of work to be performed by them.
- Obtain and review the other auditor’s description of the nature, timing, and extent of audit procedures to be performed.
- Obtain from the other auditor a written report describing the other auditor’s procedures, findings, conclusions, and, if applicable, opinion.
- Determine whether the other auditor complied with the lead auditor’s communications and whether additional audit evidence should be obtained with respect to the work performed by the other auditor.
- Require the lead auditor’s documentation to contain a specified list of other auditors’ working papers reviewed, but not retained by the lead auditor.
- Require the engagement quality reviewer to evaluate the engagement partner's determination of a firm's eligibility to serve as lead auditor.
- Obtain a representation that the referred-to auditor is appropriately licensed.
- Determine whether the referred-to auditor that would play a substantial role in the preparation or furnishing of the lead auditor’s report is registered with the PCAOB.
- Disclose the name of the referred-to audit firm in the lead auditor’s report.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams who have questions should contact the National Professional Services Group (1-973-236-7800).
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