New PCAOB rules are on the way for lead auditors

March 16, 2022

As more companies expand on a multinational scale and their requirements become ever more complex, it’s increasingly common for their auditors to work with several other audit firms.

In fact, the Public Company Accounting Oversight Board reports that multiple auditors were used in 30% of all issuer audits in 2020, and nearly 30% of these had five or more separate audit firms involved.

This is a valuable and necessary way of working in many cases, ensuring the lead auditor’s report is backed up with sufficient evidence. But it also comes with its challenges.

Over the past few years, the PCAOB has been amending its requirements to increase the lead auditor’s involvement in these cases, and it recently issued a second request for comment on its proposed changes.

Essentially, the proposals aim to make lead auditors responsible for planning, supervising and evaluating the work of other auditors – not just using their reports and work.

With responses currently under review, the project could reach a conclusion soon, bringing about new standards for auditors to meet.

The challenges of working with multiple auditors

The role of other firms during the audit process has become more important as companies’ global operations have grown.

In many cases, the lead auditor will issue the auditor’s report, but they will be assisted by other auditors in obtaining enough appropriate audit evidence to support their opinions.

The PCAOB has pointed out, however, that working with auditors from other firms can be a very different experience to conducting an audit solely within one firm.

Business practices, communication styles and quality control systems can differ from one audit firm to the next – and then, when working across multiple countries, you have the potential for differences in language, culture and market conditions.

All of this can add up to miscommunication and misunderstandings about what’s required of the auditor in different firms. If the lead auditor isn’t directly supervising the work of other firms and evaluating the evidence they provide, this could affect the quality of the audit.

In recent years, the PCAOB says some firms have been increasing their lead auditors’ responsibilities when working with others, but not all have made these improvements. The board says its findings show that increasing auditors’ involvement and supervision in this area should lead to better quality audits, and better protection for investors.

The proposed changes

The PCAOB first published its proposed amendments on this topic in 2016. It aimed to “strengthen existing requirements and impose a more uniform approach to the lead auditor’s supervision of other auditors”.

In response to comments on this, it revised the proposals and issued a supplementary request for comment in September 2017.

Then, in response to further comments, the PCAOB issued a second supplementary request for comment in September 2021.

These most recent amendments are intended to:

  • adjust certain requirements to better take into account the lead auditor’s role in the audit, and
  • improve the readability and usability of the amendments and facilitate their implementation.

The responses to this request are currently being analysed.

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