SEC approves new PCAOB audit confirmation standards targeting fraud
Dec. 7, 2023
Since early 2021, SEC Chair Gary Gensler has called on the PCAOB to more aggressively oversee the accounting firms that audit publicly listed companies.
Dive Brief:
The Securities and Exchange Commission has approved a new standard tightening the requirements for auditors when confirming details of an audit, including verifying with a third party assertions made by a client in a financial statement.
The standard for the auditor confirmation process was adopted by the Public Accounting Oversight Board in September, replacing an interim rule enacted more than 20 years ago. It adjusts to the use of email and other technology widely adopted in recent decades, and bolsters confirmation procedures with the aim of averting fraud.
“The new standard will help auditors detect fraud and better protect investors now and into the future,” PCAOB Chair Erica Williams said Monday. The SEC approved the standard on Dec. 1.
Dive Insight:
The PCAOB has sharpened its standards and toughened enforcement since Gary Gensler, after assuming the post as SEC chair in April 2021, replaced board leadership and called on it to strengthen oversight of the accounting firms that audit publicly listed companies.
Congress, following the Enron accounting scandal, created the PCAOB under the Sarbanes-Oxley Act of 2002. The SEC oversees the board.
The new confirmation standard sets more principles-based requirements for all methods of confirmation, including third-party intermediaries, and the use of electronic communications as well as paper documents. It affirms the use of risk assessment standards and emphasizes the need for obtaining reliable audit evidence.
The standard also sustains the mandate that auditors confirm accounts receivable while including a new requirement for the confirmation of cash held by third parties.
“The confirmation process touches nearly every audit,” Williams said in a speech. “It is essential they are fit for purpose in today’s world.”
The SEC highlighted a need for its staff to monitor implementation of the new standard and work closely with the PCAOB.
“Commission staff will keep itself apprised of the PCAOB’s activities for monitoring the implementation of the amendments and update the commission, as necessary,” the SEC said.
The standard “should promote investor protection by enhancing the quality of audits,” the SEC said in a Dec. 1 release.
The guidelines will be effective for all audits of financial statements for fiscal years ending on or after June 15, 2025.
[CFO Dive]
