Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

SUMMARY In August 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on means to enhance auditor independence, objectivity, and professional skepticism. The Concept Release sought comments on and explores in detail the possibility of mandatory audit firm rotation. The PCAOB provided for a 121-day exposure period (from August 16 to December 14, 2011) for interested parties to examine and provide comments on the concept release. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below (dated December 13, 2011) to the PCAOB on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation. Data Availability: Information about and access to the release are available at: http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf

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Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter 029: PCAOB Release No. 2011-007, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits

Current Issues in Auditing ◽

10.2308/ciia-50133 ◽

2012 ◽

Vol 6 (1) ◽

pp. C1-C6 ◽

Cited By ~ 5

Author(s):

Keith L. Jones ◽

Jagadison K. Aier ◽

Duane M. Brandon ◽

Tina D. Carpenter ◽

Paul Caster ◽

...

Keyword(s):

Exposure Period ◽

Data Availability ◽

Audit Report ◽

Public Accounting ◽

Accounting Firms ◽

The Public ◽

Public Comment ◽

Public Company ◽

Public Accounting Firms ◽

Auditing Standards

SUMMARY In October 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a release to solicit public comment on amendments to its standards that would improve the transparency of pubic company audits. The objective of the release was to solicit public comments on a proposed standard that would (1) require registered public accounting firms to disclose the name of the engagement partner in the audit report, (2) amend the Board's Annual Report Form to require registered firms to disclose the name of the engagement partner for each audit report already required to be reported on the form, and (3) require disclosure in the audit report of other independent public accounting firms and other persons that took part in the audit. The PCAOB provided for a 91-day exposure period (from October 11, 2011, to January 9, 2012) for interested parties to examine the release and provide comments. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on PCAOB Rulemaking Docket Matter 029: PCAOB Release No. 2011-007, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits. Data Availability: Information about and access to the release is available at: http://pcaobus.org/Rules/Rulemaking/Docket029/PCAOB_Release_2011-007.pdf

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Auditor Rotation: The PCAOB Considers a New Direction

Current Issues in Auditing ◽

10.2308/ciia-50100 ◽

2011 ◽

Vol 5 (2) ◽

pp. C15-C20 ◽

Cited By ~ 6

Author(s):

Pamela B. Roush ◽

Bryan K. Church ◽

J. Gregory Jenkins ◽

Susan A. McCracken ◽

Jonathan D. Stanley

Keyword(s):

Active Participation ◽

Auditor Independence ◽

Audit Firm ◽

The Public ◽

Auditor Rotation ◽

Public Company ◽

Mandatory Audit Firm Rotation

SUMMARY The Public Company Accounting Oversight Board (PCAOB) recently undertook an exploration of the need for mandatory audit firm rotation with its issuance of the Concept Release on Auditor Independence and Auditor Rotation (PCAOB 2011a). The accumulation of evidence from PCAOB inspections of audit engagements over the last eight years has led the Board to consider additional steps to protect auditors' independence. We provide a brief synopsis of these matters based primarily on remarks by the PCAOB's chairman, James R. Doty (PCAOB 2011b, 2011c). In addition, we include relevant observations from prior academic studies and end with a call for the active participation of stakeholders in this important debate.

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Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 34: PCAOB Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements.

Current Issues in Auditing ◽

10.2308/ciia-50074 ◽

2011 ◽

Vol 5 (2) ◽

pp. C1-C14 ◽

Cited By ~ 7

Author(s):

Joseph F Brazel ◽

Paul Caster ◽

Shawn Davis ◽

Steven M Glover ◽

Diane J Janvrin ◽

...

Keyword(s):

Audit Quality ◽

Exposure Period ◽

Financial Statements ◽

Data Availability ◽

Financial Statement ◽

The Public ◽

Additional Information ◽

Public Company ◽

Auditing Standards ◽

Auditor Reporting

SUMMARY Recently, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on the content and form of reports on audited financial statements. The objective of the concept release was to discuss several alternatives for changing the auditor's reporting model that could increase its transparency and relevance to financial statement users, while not compromising audit quality. To that end, the alternatives included (1) a supplement to the auditor's report, in which the auditor would be required to provide additional information about the audit and the company's financial statements (an “Auditor's Discussion and Analysis”), (2) required and expanded use of emphasis paragraphs in the auditor's report, (3) auditor reporting on information outside the financial statements, and (4) clarification of certain language in the auditor's report. The PCAOB provided for a 102-day exposure period (from June 21 to September 30, 2011) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements. Data Availability: Information about and access to the release is available at: http://pcaobus.org/Rules/Rulemaking/Docket034/Concept_Release.pdf

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Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 31: PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

Current Issues in Auditing ◽

10.2308/ciia-50011 ◽

2011 ◽

Vol 5 (1) ◽

pp. C11-C15 ◽

Cited By ~ 2

Author(s):

Joseph Brazel ◽

James Bierstaker ◽

Paul Caster ◽

Brad Reed

Keyword(s):

Audit Quality ◽

Exposure Period ◽

Public Accounting ◽

Accounting Firms ◽

Accounting Firm ◽

The Public ◽

Sarbanes Oxley ◽

Public Company ◽

Auditing Standards ◽

Supervision Practices

SUMMARY: Recently, the Public Company Accounting Oversight Board (“PCAOB” or “Board”) issued a release to address, in two ways, issues relating to the responsibilities of a registered public accounting firm and its supervisory personnel with respect to supervision. First, the release reminds registered firms and associated persons of, and highlights the scope of, Section 105(c)(6) of the Sarbanes-Oxley Act of 2002 (“the Act”), which authorizes the Board to impose sanctions on registered public accounting firms and their supervisory personnel for failing to supervise reasonably an associated person who has violated certain laws, rules, or standards. Second, the release discusses and seeks comment on conceptual approaches to rulemaking that might complement the application of Section 105(c)(6) and, through increased accountability, lead to improved supervision practices and, consequently, improved audit quality. The PCAOB provided for a 91-day exposure period (from August 5, 2010, to November 3, 2010) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts.

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Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2016-003, Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards

Current Issues in Auditing ◽

10.2308/ciia-51651 ◽

2016 ◽

Vol 11 (1) ◽

pp. C26-C40 ◽

Cited By ~ 1

Author(s):

Marcus M. Doxey ◽

Stephen H. Fuller ◽

Marshall A. Geiger ◽

Willie E. Gist ◽

Karl E. Hackenbrack ◽

...

Keyword(s):

Financial Statements ◽

Auditor Independence ◽

Data Availability ◽

Financial Statement ◽

Specific Information ◽

Reporting Standard ◽

The Public ◽

Auditor Tenure ◽

Public Company ◽

Auditor Reporting

SUMMARY On May 11, 2016 the Public Company Accounting Oversight Board (PCAOB) issued a request for comment on Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, a reproposal of its August 2013 proposed auditor reporting standard. The reproposal retains the pass/fail model of the existing auditor's report while seeking to enhance the form and content of the report. The reproposal solicited public comment on the following significant changes to the existing auditor's report: (1) add a description of “critical audit matters” that provides audit-specific information about especially challenging, subjective, or complex aspects of the audit as they relate to the relevant financial statement accounts and disclosures, (2) add a statement about auditor independence and the phrase “whether due to error or fraud” when describing the auditor's responsibilities to obtain reasonable assurance about whether the financial statements are free of material misstatements, (3) add a statement related to auditor tenure, and (4) standardize the form of the auditor's report, requiring the opinion be the first section of the auditor's report and requiring section titles to guide the reader. The comment period ended on August 15, 2016. This commentary summarizes the participating committee members' views on the alternatives presented in the request for comment. Data Availability: The concept release, proposed and reproposed rules, and supplemental information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket034.aspx

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Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2013-009, Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to PCAOB Auditing Standards to Provide Disclosure in the Auditor's Report of Certain Participants in the Audit

Current Issues in Auditing ◽

10.2308/ciia-50897 ◽

2014 ◽

Vol 8 (2) ◽

pp. C1-C7 ◽

Cited By ~ 6

Author(s):

Urton L. Anderson ◽

Lisa Milici Gaynor ◽

Karl E. Hackenbrack ◽

Ling Lei Lisic ◽

Yi-Jing Wu

Keyword(s):

Data Availability ◽

Public Accounting ◽

Accounting Firms ◽

The Public ◽

Related Information ◽

Public Company ◽

Public Accounting Firms ◽

Auditing Standards

SUMMARY On December 4, 2013 the Public Company Accounting Oversight Board (PCAOB) solicited public comments on its reproposed amendments to its standards that would improve the transparency of public company audits. The amendments would require (1) disclosure in the auditor's report of the name of the engagement partner, and (2) disclosure in the auditor's report of the names, locations, and extent of participation of other independent public accounting firms that took part in the audit and the locations and extent of participation of other persons not employed by the auditor that took part in the audit. The comment period initially ended on February 3, 2014, but was subsequently extended to March 17, 2014. This commentary summarizes the contributors' views on these amendments. Data Availability: The exposure drafts of the proposed and reproposed rules and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx

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Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form

Current Issues in Auditing ◽

10.2308/ciia-51313 ◽

2015 ◽

Vol 10 (1) ◽

pp. C1-C10 ◽

Cited By ~ 1

Author(s):

Marcus M. Doxey ◽

Marshall A. Geiger ◽

Karl E. Hackenbrack ◽

Sarah E. Stein

Keyword(s):

Data Availability ◽

The Public ◽

Related Information ◽

Audit Firms ◽

Public Company ◽

Auditing Standards ◽

New Form

SUMMARY On June 30, 2015 the Public Company Accounting Oversight Board (PCAOB) issued a supplemental request for comment on its 2013 reproposal to require auditors to disclose in the auditor's report the name of the engagement partner and information about certain other participants in the audit. The supplemental request solicited public comments on an alternative to disclosure of this information in the auditor's report, namely that audit firms report (1) the name of the engagement partner, and (2) the names, locations, and extent of participation of other audit participants in a new form (Form AP) to be filed with the PCAOB within 30 days of the date the auditor's report is first included in a document filed with the SEC. The comment period ended on August 31, 2015. This commentary summarizes the participating committee members' views on the alternatives presented in the supplemental request for comment. Data Availability: The exposure drafts of the proposed and reproposed rules, the supplemental request for comment, and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx

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Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

Current Issues in Auditing ◽

10.2308/ciia-51109 ◽

2015 ◽

Vol 9 (1) ◽

pp. A13-A27 ◽

Cited By ~ 2

Author(s):

William J. Read

Keyword(s):

Audit Fees ◽

Auditor Independence ◽

Data Availability ◽

Audit Failure ◽

The Public ◽

Going Concern ◽

Audit Firms ◽

Public Company ◽

Reporting Decisions ◽

Auditor Fees

SUMMARY The recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms. Data Availability: Publicly available from sources identified in the paper.

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A Reexamination of Audit Fees for Initial Audit Engagements in the Post-SOX Period

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50670 ◽

2013 ◽

Vol 33 (2) ◽

pp. 59-78 ◽

Cited By ~ 26

Author(s):

Rosemond Desir ◽

Jeffrey R. Casterella ◽

Julia Kokina

Keyword(s):

Audit Fees ◽

Auditor Independence ◽

Data Availability ◽

Sample Period ◽

Accounting Firms ◽

The Public ◽

Sarbanes Oxley ◽

Big 4 ◽

Public Company ◽

Client Relationships

SUMMARY: On August 16, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release seeking comments on ways to enhance auditor independence. The Board notes that higher failure rates in new audit engagements might be linked to unrealistic pricing. The Board's concern is that a new auditor might be more susceptible to management pressure if initial-year audit fees are set artificially low. Prior to the Sarbanes-Oxley Act (SOX) of 2002, empirical evidence shows that auditors discounted their initial-year audit fees. This practice, known as lowballing, was expected to decrease significantly after the enactment of SOX. Indeed, findings in Huang, Raghunandan, and Rama (2009) seem to confirm that Big 4 auditors charged a fee premium on new auditor-client relationships in 2006. However, it is not clear if more recent post-SOX initial-year audits are free of lowballing. We investigate whether lowballing exists in new auditor-client relationships in an “extended” post-SOX environment for the years 2007 to 2010. Our results suggest that both Big 4 and non-Big 4 accounting firms discounted their initial-year audit fees during our sample period (2007–2010). These findings should be of interest to the PCAOB as it searches for ways to bolster auditor independence. Data Availability: Available from public sources.

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Auditor Tenure and the Pricing of Discretionary Accruals in the Post-SOX Era

Accounting and the Public Interest ◽

10.2308/apin-10204 ◽

2012 ◽

Vol 12 (1) ◽

pp. 1-15 ◽

Cited By ~ 4

Author(s):

David S. Jenkins ◽

Uma K. Velury

Keyword(s):

Audit Quality ◽

Discretionary Accruals ◽

Data Availability ◽

Policy Implications ◽

Significant Relation ◽

Audit Firm ◽

The Public ◽

Auditor Tenure ◽

Accruals Quality ◽

Mandatory Audit Firm Rotation

ABSTRACT This study empirically examines the public policy implications of mandatory audit firm rotation in the context of the relation between auditor tenure and the market's perception of discretionary accruals quality in the pre- and post-SOX periods. Consistent with prior research, the pre-SOX results support the effects of auditor learning and auditor closeness on the relation between auditor tenure and audit quality. We further demonstrate that in the post-SOX period, there is no significant relation between auditor tenure and the pricing of discretionary accruals. The post-SOX results indicate that the market's perception of auditor tenure as a significant determinant of audit quality may have diminished in the environment of increased regulation under SOX. The findings further imply that ongoing consideration of a policy that mandates periodic audit firm rotation may no longer be essential with the passage of SOX. Data Availability: Data used in this study were obtained from publicly available sources identified in the text.

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