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PCAOB sets new requirements for use of multiple audit firms


The Public Company Accounting Oversight Board adopted a set of amendments Tuesday to its auditing standards to strengthen the rules that apply to audits involving multiple audit firms with new requirements for a lead auditor’s use of other auditors.

The amendments, which came after three solicitations from the PCAOB for outside comments, aim to improve the quality of audits in which other accounting firms or individual accountants perform essential work on the audit for the same company. They will require firms to be more careful about who they hire and to make sure they’re following the appropriate audit procedures.

“Today, after an extensive process of analysis and public input regarding the lead auditor’s use of other auditors, the board is taking action to improve audit quality and strengthen investor protection,” said PCAOB Chair Erica Y. Williams in a statement. “These amendments will require audit firms to ensure that lead auditors sufficiently plan, supervise and evaluate the work of other auditors.”

Working with auditors at a different firm can be a far different experience from collaborating with people employed by the same firm. The various challenges in coordination and communication can result in misunderstandings about the nature, timing and extent of the other auditors’ work and lessen the quality of the audit. To address such problems, the amendments include changes to some of the PCAOB’s existing standards and adopt a new standard. They spell out specific procedures for the lead auditor to perform when planning and supervising an audit that involves the work of other auditors. They also apply a risk-based supervisory approach to the lead auditor’s oversight of other auditors for whose work the lead auditor is taking responsibility.

The amendments will apply to all audits conducted under PCAOB standards, but will be subject to approval by the Securities and Exchange Commission. Once they’re approved by the SEC, the amendments are expected to take effect for audits of financial statements for fiscal years ending on or after Dec. 15, 2024.

The PCAOB has been working on the standard since at least 2016. For more information about the project, click here.

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