Audit regulators expect to finalize a new rule on related parties by the end of the first quarter, but they will not adopt a final rule on naming engagement partners until after another round of proposal and public comment.

The Public Company Accounting Oversight Board has updated its standard setting agenda with targeted time lines for various rule-making projects through the first quarter. The board has determined after its May proposal on how auditors should scrutinize transactions companies undertake with related parties, or those that have close ties to the company, it is ready to move to a final rule. On giving investors some transparency into which engagement partner at the audit firm was responsible for overseeing an audit, however, the board has determined it will make some changes significant enough to warrant another proposal and feedback period.

On related parties, the PCAOB proposed an auditing standard that would address how auditors should evaluate a company's identification of, accounting for, and disclosures of transactions that occur with entities or individuals who have close ties to the company. Investors are looking for transparency around such business dealings to assure they have a legitimate business purpose and occur at arm's length. The standard also aims to address how auditors should identify and evaluate significant unusual transactions, and how auditors should get an understanding of a company's financial relationship with its top executives as part of the risk assessment process.

The May proposal was the second proposal issued by the PCAOB after an initial proposal and comment period in 2012. The most recent proposal drew a few dozen comment letters and was a topic of discussion at the PCAOB's Standing Advisory Group meeting in May. Feedback to the initial proposal encouraged the PCAOB to take care to direct auditors not to evaluate the appropriateness of management decisions, such as whether executive compensation is appropriate, but to consider compensation arrangements as a possible risk factor. Feedback to the most recent proposal is mostly supportive of the board's latest effort.

PCAOB Chairman James Doty said in a springtime speech that the proposal describes basic tools that auditors have used for years to identify financial reporting risks. “For example, it requires auditors to understand management's compensation as a way to understand management's motivations,” he said.

As for transparency around naming engagement partners and others outside the audit firm who contributed to an audit, the PCAOB has indicated it will issue a new proposal at some point before the end of March 2014. The board issued a concept release looking for ideas around how to get more transparency into who is behind an audit, especially whether to require auditors to sign and certify an audit report much the way CEOs and CFOs certify financial statements. The board heard much protest to a signature requirement, primarily based on heightened liability and its cascading cost implications.

That prompted the PCAOB to propose a standard in 2011 that would require audit firms to include in the audit report the name of the engagement partner who directed the audit, along with the identities of those outside the audit firm who were brought in to help with the audit. The board still heard concerns over heightened liability and increased litigation risks in many of the 44 comment letters it received, yet investor advocates continue to demand names. Some audit firms suggested the board scrap the naming idea for audit reports, but instead require firms to provide names for specific audit clients through their annual reporting to the PCAOB. Audit firms reasoned the information would still be accessible to investors, but without the same level of liability and litigation implications.

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