Based on initial comments to seven proposed standards on assessing and responding to risk, the Public Company Accounting Oversight Board has reworked the package and is asking for public comment on the revisions.

The board unanimously approved the revisions suggested by the staff of Chief Auditor Marty Baumann and agreed to put them out for a 75-day comment period. According to Dan Goelzer, acting chairman of the PCAOB, the revised standards are “not fundamentally different in approach” from the original seven proposed standards, but they provide for numerous enhancements and clarifications.

The most significant changes, said Goelzer, focus on better aligning the proposed new requirements with existing requirements in Auditing Standard No. 5, which governs the audit of internal control over financial reporting, and on emphasizing the auditor’s duty to evaluate financial statement disclosures in addition to data. The new standards also provide “beefed up requirements” regarding considering the possibility of fraud, Goelzer said.

The suite of seven risk standards focus on audit risk, audit planning and supervision, the consideration of materiality in planning and performing the audit, identifying and assessing the risks of material misstatement, the appropriate audit response to risks of material misstatements, evaluating audit results, and audit evidence.

The PCAOB originally proposed the package in October 2008 and accepted comments through late February. Goelzer said the seven standards are meant to serve as a “bedrock” for much of the board’s future standard setting. “The standards will provide a base that focuses on appropriate risk identification and on auditing planning tailored to those risks,” he said.

Board member Steven Harris said he’s hopeful the PCAOB will hear from more investors on the revised standards, noting the first proposal raised only one investor reaction from a grand total of 33 comment letters. “Since these standards were first proposed last year, the world has witnessed firsthand the consequences of ineffective risk management,” he said.

The new standards more explicitly describe the auditor’s responsibility to consider business risk as an important element of audit risk, said Harris. “The standards require the auditor to do the homework necessary to identify and to assess the risk of error or the risk of fraud in the financial statements,” he said.

PCAOB member Charles Niemeier, who is remaining on the board past his term until the SEC names his replacement, said he’s not “completely comfortable” with all the decisions in the seven-standard package, but he’s comfortable seeing it exposed for further comment.

The 252-page proposal provides an appendix comparing the proposed standards with prevailing international requirements, the International Standards on Auditing written by the International Audit and Assurance Standards Board. Niemeier said he would prefer to see more attention focused on improving the board’s own standards than comparing them to standards in other jurisdictions.

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