As audit regulators review comments on their reworked proposal for seven new risk assessment standards, they’re also getting some pretty forthright advice on how to write audit rules.

Even the U.S. Government Accountability Office has weighed in on where the Public Company Accounting Oversight Board may be inviting trouble with its latest attempt. The PCAOB’s approach “will increase the likelihood of misinterpretations, inconsistent application of the standards, and higher costs for all users with a disproportionate burden on smaller and mid-sized firms,” wrote Jeanette Franzel, managing director in financial management and assurance for the GAO.

The comment period ended earlier this week for the PCAOB’s round-two proposal of seven standards that are intended to steer auditors in a new direction when it comes to assessing and responding to risk of misstatement in an audit of public company financial statements. The concepts behind each of the seven standards focus on audit risk, audit planning and supervision, consideration of materiality in planning and performing an audit, identifying and assessing risks of material misstatement, the auditor's responses to the risks of material misstatement, evaluating audit results, and audit evidence.

The major audit firms and the Center for Audit Quality commented not only on the proposals, but also on PCAOB’s method for developing the standards. They’re concerned that the PCAOB’s rationale and approach in many ways is simply unclear.

The CAQ, for example, along with most of the major firms, told the PCAOB it needs to provide a better description of how it expects auditor performance to change under the new rules. They’re looking for more detailed comparisons of proposed standards with existing standards, not only of the PCAOB itself but also the International Auditing and Assurance Standards Board and the Auditing Standards Board of the American Institute of Certified Public Accountants. They’re looking for more collaboration and convergence, so auditors can work from a more cohesive set of requirements.

“We request the board consider further enhancements to its standards-setting process that would provide additional visibility to the board’s rationale and expectations for changes to practice,” wrote Cindy Fornelli, executive director of the CAQ.

The PCAOB has not set a timeline for when it will act on the comments to move toward finalizing the new standards. The board issued its first proposal in October 2008 and its second proposal in December 2009.

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