The European Union took a step toward requiring mandatory audit firm rotation when the European Parliament’s Legal Affairs Committee voted 15–10 in favor of a draft law that would require public-interest entities such as banks, insurance firms, and listed companies to rotate audit firms every 14 years.
That period could be extended to 25 years when certain safeguards are put into place.
The vote resulted in a toned-down version of reforms previously proposed by the European Commission, which called for mandatory rotation every six years. A majority on the Legal Affairs Committee judged that period to be a costly and unwelcome intervention in the audit market, according to a committee news release.
The proposal still has to go through several steps before it becomes law, beginning with negotiations with the European Council. Sajjad Karim, a European Parliament member from the United Kingdom who drafted the reforms, said during a news conference that he hopes a final vote in Parliament will take place before the end of the year.
The full story on the proposal is available at tinyurl.com/bsbhs6q.
The PCAOB reproposed an auditing standard and amendments designed to improve the quality of auditing of related-party transactions and significant unusual transactions.
The reproposed standard is designed to increase the auditor’s focus on the evaluation of how a company identifies, accounts for, and discloses its relationships and transactions with related parties.
The reproposed amendments, meanwhile, are intended to help the auditor identify and evaluate a company’s significant unusual transactions. In addition, the reproposed amendments would require the auditor to perform new procedures as part of the process to assess the risk of material misstatement in financial statements.
These procedures would give the auditor an understanding of a company’s financial relationships and transactions with executive officers, the PCAOB said. But the auditor would not be required to make any determination or recommendation regarding how reasonable the compensation arrangements are.
Commenters generally supported the previous proposal, which the PCAOB released on Feb. 28, 2012, according to PCAOB Deputy Chief Auditor Greg Scates. But commenters also offered suggestions for improvements and adjustments, which are included in the new proposal, Scates said.
Several changes in the new proposal, available at tinyurl.com/bqz5sof, include:
- Clarifying the relationship of the proposal with the PCAOB’s existing risk assessment standards.
- A requirement to evaluate whether the company has properly identified its related parties and its relationships and transactions with related parties.
- Removing the requirement that each related-party transaction previously undisclosed to the auditor by management be treated as a significant risk.
The PCAOB’s existing standard, AU Section 334, Related Parties, would be superseded by the reproposed standard. The reproposed amendments would amend other auditing standards, including AU Section 316, Consideration of Fraud in a Financial Statement Audit, and Auditing Standard No. 12, Identifying and Assessing Risks of Material Misstatement.
Comments are due July 8.
The AICPA Auditing Standards Board (ASB) has exposed a new, clarified standard that applies to use of the work of internal auditors.
With the issuance of the Proposed Statement on Auditing Standards (SAS), Using the Work of Internal Auditors, the ASB has completed the clarity project redrafting of its last unclarified AU section in the AICPA Professional Standards.
The proposed SAS would supersede AU Section 322 and AU-C Section 610, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements.
Amendments include significant changes to AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. An explanatory memorandum describing the most significant changes to the SAS is provided in the exposure draft.
The proposal is available at tinyurl.com/csokk9u. Comments are sought by July 15 and should be addressed to Sherry Hazel at firstname.lastname@example.org.
Readers are specifically asked:
- To respond to the proposed requirements and application guidance relating to using internal auditors in a direct assistance capacity.
- Whether the changes from the requirements and guidance included in International Standard on Auditing No. 610 (Revised 2013), Using the Work of Internal Auditors, are appropriate.
Independent auditors sometimes find themselves in conflict with regulator-prescribed forms. In an emerging issue for auditors, some of them have found that the reports they are required to submit to state regulators do not contain the specific elements and wording of generally accepted auditing standards (GAAS) that state accountancy laws require auditors to follow.
The AICPA’s website is providing resources (visit tinyurl.com/cku4efx) to help auditors find solutions to this issue. Many state regulators require that auditors provide an opinion on financial information to a regulator, often by means of an auditor’s report on forms prescribed by the regulator.
If the minimum required reporting elements and wording are not contained in the prescribed form, the auditor is required by GAAS to reword the prescribed form of the report or attach an appropriately worded separate report.
This issue first surfaced in New York with a form required by the New York City Tax Commission. The technical teams of the New York State Society of CPAs and the AICPA crafted a solution that allows auditors to meet the AICPA Auditing Standards Board’s new standards without requiring the city of New York to issue a new form.
This was accomplished when the commission agreed to accept either footnotes to the city’s form or a separate report attached to the form. Members who encounter this problem are encouraged to contact the AICPA or their state societies for assistance.
Contact Ahava Goldman, AICPA senior technical manager (email@example.com or 212-596-6056), with questions.
Recently implemented federal rules on disclosure of conflict minerals have mandated new audit requirements for some U.S. issuers.
The AICPA Conflict Minerals Resources webpage (tinyurl.com/cdgwk9p) provides background and other useful information about the use of conflict minerals, which are gold, tantalum, tin, and tungsten.
In addition, new Questions and Answers (available at tinyurl.com/c8n9plt) have been issued to provide nonauthoritative guidance and describe the key similarities and differences between the two services—an examination attestation engagement and a performance audit—that can fulfill the SEC’s mandate of an independent audit of the conflict minerals report.
The mandated conflict minerals disclosure rules are among the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203. The SEC’s final rule, adopted in August 2012, requires issuers who use those minerals in their manufacturing processes and supply chain—and have determined that those minerals originated in the Democratic Republic of the Congo or its neighboring countries—to file a Conflict Minerals Report with the SEC and publish the report on the issuer’s website.
The report must be independently audited in accordance with U.S. Government Auditing Standards (The Yellow Book) and can consist of either an examination attestation engagement or a performance audit.
A new Statement of Position (SOP) released under the authority of the ASB establishes guidance for attest engagements on entities’ greenhouse gas emissions statements.
SOP 13-1, Attest Engagements on Greenhouse Gas Emissions Information, supersedes SOP 03-02, which had the same title. The SOP guides practitioners performing an examination or a review of a greenhouse gas emissions statement containing either a schedule with the subject matter or an assertion relating to information about an entity’s greenhouse gas emissions.
The SOP also provides guidance on the application of AT Section 101, Attest Engagements, to greenhouse gas emissions attest engagements. SOP 13-1, available at tinyurl.com/cyy3t7a, takes effect for reports on greenhouse gas emissions information issued on or after Sept. 15. Early implementation is permitted.