November 30, 2017

The American Institute of CPAs’ Auditing Standards Board has released three exposure drafts proposing ways to improve the usefulness of the auditor’s report, in response to recent standards from the Public Company Accounting Oversight Board and the International Auditing and Assurance Standards Board.

The three exposure drafts are:

• Proposed Statement on Auditing Standards: Omnibus Statement on Auditing Standards—2018 proposes to harmonize Generally Accepted Auditing Standards with two PCAOB standards—Auditing Standard 1301, Communication with Audit Committees, and AS 2410, Related Parties. The two PCAOB standards came out after the AICPA’s Auditing Standards Board finished work on its Clarity Project in 2012 for making its auditing standards clearer. The exposure draft proposes to amend various sections of the AICPA’s Professional Standards.

• Proposed Statements on Auditing Standards: Auditor Reporting and Proposed Amendments -- Addressing Disclosures in the Audit of Financial Statements aims to modify and extend the auditor's report as part of an effort to align the AICPA standards with the guidance of the International Auditing and Assurance Standards Board. The exposure draft proposes a new auditing standard, Communicating Key Audit Matters in the Independent Auditor’s Report, and to supersede and amend various sections of the AICPA’s Professional Standards.

• Proposed Statement on Auditing Standards: The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports would supersede AU-C section 720, Other Information in Documents Containing Audited Financial Statements (part of the AICPA’s Professional Standards), with the goal of providing more consistency and less diversity in practice.

The AICPA is asking for comments on the three exposure drafts by May 15, 2018. The provisional effective date of all three of them wouldn’t be earlier than for audits of financial statements for periods ending on or after June 15, 2019.

“This long-awaited report rightly acknowledges that the FRC should have been more ‘proactive’ in investigating KMPG’s audit of HBOS,” she said in a statement. “It was only through pressure from the Treasury Committee that the FRC decided to act.”

The FRC said it wanted to make it easier to take action against accountants who are members of professional bodies for breaches of relevant rules.

LEGISLATION, IF NECESSARY

Following a reform last year, the FRC can pursue accountants who work for an audit company for breaches, with a lower legal hurdle than the previous test of having to show misconduct.

The old test, however, remains when it comes to investigating professional accountants working for companies like HBOS and who prepare accounts for external auditing.

Haddrill said he wanted the same breaches rule for all accountants, wherever they work.

The backing of professional bodies is needed to make the change, but Haddrill said there were other options and called on Morgan to support its efforts and “if necessary, legislation”.

The ICAEW, one of the main professional bodies, said not just accountants but all professionals working in public interest roles should be held to a higher level of accountability.

“We would support an even bolder approach ... towards improving the public’s trust in business,” ICAEW Chief Executive Michael Izza said.

In a rare move, the FRC published a report setting out why it closed the KPMG case, saying it could not prove misconduct as at the time the audit was done there was “good evidence” that the possibility of HBOS failing was “remote”.

“As the FRC’s report notes, the intensification of the financial crisis in late 2008 was not foreseen by market participants,” KPMG said, adding that the Bank of England continued to forecast positive GDP growth until August 2008.

The FRC said it was taking the lead in responding to and investigating audits and has expanded its enforcement division.

It also said it would publish a summary of its reasons for closing an investigation, following criticism that it does not sufficiently explain its actions.

[Accounting Today]