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  • Writer's pictureDaniel Goelzer

PCAOB Strengthens the Standards for Audits Involving Multiple Auditors

PCAOB has adopted amendments to its auditing standards to strengthen the requirements for planning and supervising audits involving accounting firms and individual accountants in addition to the accounting firm that issues the auditor’s report. The Board also adopted a new auditing standard that will apply when the lead auditor divides responsibility for an audit with another accounting firm. Because companies frequently have operations in more than one country, the use of other firms in audits has increased significantly.

The amendments are intended to increase and improve the lead auditor’s involvement in and evaluation of the other auditors’ work. Among other things, the changes will:

  • Require that the engagement partner determine whether his or her firm’s participation in the audit is sufficient to fulfill the responsibilities of a lead auditor and issue the audit report.

  • Require that the lead auditor, when determining the engagement’s compliance with independence and ethics requirements, understand the other auditors’ knowledge of those requirements and experience in applying them. The lead auditor must also obtain and review written affirmations regarding the other auditors’ policies, procedures, and client relationships.

  • Require that the lead auditor understand the knowledge, skill, and ability of other auditors’ engagement team members and obtain a written affirmation from other auditors that their team members possess the knowledge, skill, and ability to perform assigned tasks.

  • Require that the lead auditor supervise other auditors in accordance with PCAOB standards; inform other auditors about the scope of their work and risks of material misstatement; communicate about audit procedures to be performed; and obtain and review written affirmations from other auditors about their performance.

While these amendments primarily affect the relationship between the lead auditor and other auditors, the PCAOB believes they may also indirectly benefit audit committees (and investors):

“Because of the lead auditor’s enhanced involvement in the work of other auditors, the quality of communications with audit committees could also be enhanced, specifically as it relates to risks of material misstatements in the financial statements related to the component(s) of the company audited by the other auditor(s). Such enhanced discussions with the audit committee could improve the audit committee’s oversight of the audit by highlighting areas where audit committees and companies should increase attention to ensure the quality of their financial statements, including related disclosures. This increased attention by audit committees and companies could result in higher quality financial reporting, which benefits investors.”

Assuming approval by the SEC, the amendments will take effect for audits of financial statements for fiscal years ending on or after December 15, 2024.

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