Corporate & Securities Law

By James Hamilton

PCAOB Member Bill Gradison has added his voice to the growing call for convergence of US and international audit standards. In fact, in remarks to the American Accounting Association, he said that this year the PCAOB may move the issue of multiple auditing standards ``to the front burner.?? Specifically, he mentioned that the Board?s own Strategic Plan, under the general goal of playing a leadership role in international efforts to improve auditor oversight and auditing practices and reduce duplication of effort, commits the Board to examine the implications for the PCAOB?s mission of multiple auditing standards and varying audit environments across global capital markets and consider how the Board should respond.

In the past six months, PCAOB senior officials have agreed in principle that there is a strong movement towards international auditing standards, but at the same time recognizing that significant differences remain, including the internal control standard mandated by the Sarbanes-Oxley Act. And Member Gradison mentioned that there has been no global groundswell of support for the Section 404(b) requirement that audits of US issuers include an integrated audit to determine the effectiveness of internal controls.

In his view, there are two separate but related issues on the road to convergence. First, there is the appropriateness of the objectives and requirements of the standards themselves. Second, there is the operational issue of the formatting of the standards, which involves the clarity of the wording, organization, and presentation, all of which may impact the auditors? ability to understand and follow the standards. As a corollary, there is also the ability of inspectors to monitor compliance.

The Member noted that the Board is already taking some concrete steps in the area of international audit standards. For example, in considering proposed PCAOB standards, a current priority for the Chief Accountant is how PCAOB standards relate to those of the IAASB.
Working towards convergence of auditing standards globally is likewise a theme that has emerged from discussions of the PCAOB?s Standing Advisory Group.

Further, it is a perspective receiving prominence in the recommendations of other groups. For example, the Bloomberg/Schumer Report suggested that the PCAOB take a leadership role in establishing the standardization of world-wide auditing standards as a priority for the relevant national bodies.

Member Gradison noted that the Board?s recent proposed guidance on achieving full reliance on the inspections of foreign audit firms by non-US audit regulators also opened a window into how people think about international audit standards. For example, in its comment letter on the proposed guidance, the Swiss Federal Audit Oversight Authority welcomed convergence so that the differences between the auditing of financial statements pursuant to US law and Swiss law will be minimal. Similarly, the global audit firm Mazars noted that the problems of implementing a full reliance regime demonstrate the importance of accelerating convergence towards international audit standards. And another global firm, KPMG, urged the Board to achieve full international convergence of inspection and registration regimes, like in the area of accounting standards and auditing standards.

Full post as published by Jim Hamilton's World of Securities Regulation on April 13, 2008 (boomark / email).