The Public Company Accounting Oversight Board is preparing to reorganize the entire collection of auditing standards into a topical structure under a single numbering system, much the way accounting standards were reorganized and published in a new format in 2009.
The PCAOB has issued for public comment a proposed framework for how to reorganize auditing standards that have been written and adopted by the PCAOB since its inception under Sarbanes-Oxley, along with interim standards the board adopted in 2003 as a starting point from professional standards written by the American Institute of Certified Public Accountants. The historical approach has produced two separate numerical systems, which the PCAOB now wants to integrate into a single system of standards organized according to how an auditor would conduct an audit.
In its proposed reorganization, the PCAOB does not propose any substantive changes to existing accounting standards, but instead establishes a framework for how it would organize the standards. As part of the framework, it also proposes some conforming amendments to facilitate the transition, and the rescinding of some standards that would no longer be necessary under the reorganized format.
The proposal is a first step in the reorganization, however, so it does not go as far as the Financial Accounting Standards Board when it issued the Accounting Standards Codification to reorganize all accounting rules. “What we are proposing today is a starting point for a more logical organization of the auditing standards under our purview,” said PCAOB member Jay Hanson during an open board meeting.
The proposal does not, for example, include the detailed, line-by-line amendments that would need to be made to renumber the standards or modify cross references. It also does not modify auditing standards to correct obsolete references to accounting rules or other PCAOB rules that have been changed or eliminated since the auditing standards originated. “In some cases, these references would be relatively easy to eliminate or to replace with current citations,” said Hanson. “In others, the changes may require a substantive amendment to the auditing requirements. At this point, the Board has not made a final decision about how inaccurate references to GAAP or other requirements in the context of this reorganization project will be addressed.”
Hanson said the PCAOB's project is much narrower in scope than FASB's effort to produce the Codification. For now, at least, the PCAOB is not addressing a consistent numbering convention for individual sections within each standard, he said. It also is not addressing materials that go beyond those issued by the PCAOB, such as guidance from the Securities and Exchange Commission. Perhaps most significantly, the reorganization does not include producing a sophisticated research system such as that for the Codification, although the PCAOB envisions making its reorganized standards accessible and searchable on its website.
Martin Baumann, chief auditor for the PCAOB, said the board can consider pursuing a more comprehensive project to address such changes, but it will take more time. Ultimately, he said, it is the board's decision as to whether to reorganize standards in stages that can be made available sooner, or comprehensively over a longer period of time. The board issued its proposed framework unanimously, and is accepting comments on it through May 28.
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