The PCAOB today voted to adopted a rule, Auditing Standard No. 7, that “provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement.” In other words, according to CFO.com, the rule prohibits lower-level employees for conducting final reviews of financial statements.
Under the new Auditing Standard No. 7, such reviews — which the PCAOB officially calls “engagement quality reviews” but are often referred to as concurring reviews — are expected to be done by a partner or other high-level auditor who hasn’t worked on the audit under review.
To further put the onus on reviewers to take the evaluations seriously, the PCAOB also today issued for comment a concept release to gauge whether concurring reviewers should be required to put their signatures on audit reports.
The PCAOB has struggled to explain how these reviews should be conducted. After the original proposal was made in February 2008, finance executives worried it would lead to “re-audits” rather than just a final backstop to an audit team’s work before signoff on a client’s financial reports.
If approved by the SEC, the rule would take effect for fiscal years beginning on or after December 15, 2009.
Separately, but in the same press release, the PCAOB is seeking public comment “on a Concept Release to consider the effects of a potential requirement for the engagement partner to sign the audit report.” That is, instead of the audit opinion simply reading, “PricewaterhouseCoopers LLP, New York, NY,” Partner & CPA Jane Smith would also need add her name to the opinion. Partners personally signing opinions is not uncommon in other countries and jurisdictions. We encounter this often in Scandinavian countries, for example this annual report from the Finnish company, Outokumpu.