Audit regulators will meet on Wednesday to discuss how to proceed with a proposed auditing standard on engagement quality reviews that has been criticized as too extreme and too different from international standards.

The Public Company Accounting Oversight Board first proposed its standard on the engagement quality review in February 2008. The board accepted comments through mid-July 2008 but took no further public action on the proposal. The new standard is intended to formalize and codify the practice traditionally known in the accounting profession as the “concurring partner” review, where an audit partner not on the engagement team reviews the audit work and offers any comments or observations.

As originally proposed, the PCAOB’s standard would establish more explicit requirements for the partner performing the engagement quality review—most notably requiring the reviewing partner to conclude there’s nothing he or she knows or should know that should prevent the audit report from being issued. The proposed standard also requires the reviewing partner to meet minimum professional qualifications and to look more closely at high-risk areas of the audit for potential problems. The standard is intended to ensure the review is performed for all audits of publicly held companies, regardless of size.

A number of comment letters, especially from audit firms, flagged concerns that the standard substantially raises the performance bar on the reviewing partner, which will result in more work and therefore more audit cost. In its comment letter, PricewaterhouseCoopers said the proposal “could impose substantial new burdens on the engagement quality reviewer without a commensurate benefit to audit quality.”

Of particular concern, said Bart Friedman, a partner with law firm Cahill Gordon & Reindel, is the requirement for reviewing partners to sign off on something they claim to know or should know. “‘Knows’ or ‘should know’ really imports a dramatically different standard on this review,” said Friedman. “It’s a legal standard that’s going to exacerbate the adversarial relationship between audit firms and their clients.”

Friedman said the term is “sufficiently vague” that it will give regulators plenty of room to second-guess judgments made in real time, driving auditors to perform significantly more work. “It will be much more challenging to review not only what they know at the time but what somebody could argue in hindsight they should have known,” he said.

The firms also point out that the standards outlined in the proposal exceed those established by the International Auditing and Assurance Standards Board, just as U.S. auditing regulators are beginning to show more interest in converging U.S. and international audit rules.

The PCAOB has given no advance hints about how it plans to respond to these and other remarks and suggestions contained in 38 comment letters, but it scheduled the meeting Wednesday morning at its Washington, D.C., headquarters to “consider reproposing” its engagement quality review standard.

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