PCAOB Release No. 2022-002

On June 21, 2022, the Public Company Accounting Oversight Board (PCAOB) adopted amendments to its auditing standards that apply to audits involving multiple audit firms. The amendments are intended to strengthen requirements for planning and supervising audits involving accounting firms and individual accountants (collectively, “other auditors”) outside the accounting firm that issues the auditor’s report (the “lead auditor”). In such audits, the lead auditor issues the audit report on the company’s consolidated financial statements, but other auditors often perform important work on the audit. In addition, the PCAOB adopted a new auditing standard that will apply when the lead auditor divides responsibility for an audit with another accounting firm (“referred-to auditor”). The amendments apply a risk-based supervisory approach to the lead auditor’s oversight of other auditors and require that the lead auditor perform certain procedures when planning and supervising an audit that involves other auditors. As noted in PCAOB Release No. 2022-002, the amendments:

  • Require that the engagement partner determine whether his or her firm’s participation in the audit is sufficient for the firm to carry out the responsibilities of a lead auditor and report as such. Require that the audit’s engagement quality reviewer review the determination.
  • Require that the lead auditor, when determining the engagement’s compliance with independence and ethics requirements, understand the other auditors’ knowledge of those requirements and experience in applying them. The amendments also require that the lead auditor obtain and review written affirmations regarding the other auditors’ policies and procedures related to those requirements and regarding compliance with the requirements, and a description of certain auditor-client relationships related to independence.
  • Require that the lead auditor understand the knowledge, skill, and ability of other auditors’ engagement team members who assist the lead auditor with planning and supervision, and obtain a written affirmation from other auditors that their engagement team members possess the knowledge, skill, and ability to perform assigned tasks.
  • Require that the lead auditor supervise other auditors under the Board’s standard on audit supervision and inform other auditors about the scope of their work, identified risks of material misstatement, and certain other key matters. The amendments also require that the lead auditor and other auditors communicate about the audit procedures to be performed, and any changes needed to the procedures. In addition, the amendments require the lead auditor to obtain and review written affirmations from other auditors about their performance of work in accordance with the lead auditor’s instructions, and to direct other auditors to provide certain documentation about their work.
  • Provide that, in multi-tiered audits, a first other auditor may assist the lead auditor in performing certain required procedures with respect to second other auditors.
  • The rule making rescinds an interim standard but carries forward and strengthens some of its requirements in a new standard that applies to those infrequent situations where the lead auditor divides responsibility for a portion of the audit with another audit firm and therefore does not supervise the work performed by that firm. In these situations, the lead auditor refers in the audit report to the work of that auditor (i.e., a referred-to auditor). This new standard requires that in these situations the lead auditor determine that audit procedures were performed regarding the consolidation or combination of financial statements of the business units audited by the referred-to auditor into the company’s financial statements. The standard also requires that the lead auditor obtain the referred-to auditor’s written representation that it is independent and duly licensed to practice, and that the lead auditor disclose in the audit report the magnitude of the portion of the financial statements and, if applicable, internal controls audited by the referred-to auditor.

The amendments and new standard apply to all audits conducted under PCAOB standards. Subject to approval by the Securities and Exchange Commission, the amendments and new standard will take effect for audits for fiscal years ending on or after December 15, 2024.