Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

25 June 2013

FEE comments on PCAOB Rulemaking Docket Matter No 038 - Proposed Auditing Standard on Related Parties


Default: Change to:


FEE provides its comments on the PCAOB Rulemaking Docket Matter No 038 - Proposed Auditing Standard on Related Parties – Proposed Amendments to Certain PCAOB Auditing Standards regarding Significant Unusual Transactions and Other Proposed Amendments to PCAOB Auditing Standards.


FEE's general comments on the remaining issues re the PCAOB proposed standard that are relevant from a European or international perspective are set out below and can be summarised as follows:

  • FEE previously suggested that it would be appropriate to explicitly include fraud risk in the objective of an audit standard on related parties. Whilst recognising that the PCAOB does have a separate fraud standard, FEE stresses that the very limited mention of fraud (not significantly changed from the 2012 proposal) in the re-proposal is a mismatch with the amount of coverage in the accompanying material that lengthily deals for instance with recent fraud cases. At the very least, it would be helpful for practitioners if material would be included in this standard – currently there is just one note referencing AU 316.
  • In general, FEE believes that alignment in auditing standards worldwide, to the maximum degree possible, is beneficial for capital market participants with cross-border interests and global activities. The new proposed standard on related parties introduces a closer alignment with the equivalent ISA issued by the IAASB. However, differences remain as displayed in the comparative analysis. Given that related parties often have cross-border elements in large companies, FEE believes that differences in audit standards regarding the audit of related parties should be kept to a minimum with differences only arising from specific national requirements.

With regard to international alignment, FEE would like to emphasise that this alignment of auditing standards enhances the quality of audits based on globally accepted auditing standards at national level, including the acceptance of audit reports beyond home jurisdictions. In addition, aligning requirements worldwide regarding communication with audit committees facilitates the participation of non-national members in audit committees which is a corporate governance consideration that multinational companies face.

The new proposed standard on related parties introduces a closer alignment with the equivalent ISA issued by the IAASB. In this context, FEE welcomes the comparison between the proposed standard and the ISAs included in Appendix 5. Currently, this appendix is mainly descriptive with references to the requirements in each set of standards. Although the comparison with equivalent ISAs is useful, it would be beneficial to users if the PCAOB provided detailed comments as to why the PCAOB believes that specific differences remain necessary. Given that related parties often have cross-border elements in large companies, FEE believes that differences in audit standards regarding the audit of related parties should be kept to a minimum with differences only arising from specific national requirements.

In future projects, increased transparency regarding the standard-setting process would facilitate those commenting on the proposals performing an analysis of the proposals as well as the application of the PCAOB audit standards by auditors of multinational companies that normally operate in an ISA environment. This would altogether lead to higher quality standards. Such transparency could be achieved by providing mark-up texts of the proposals and through providing further arguments as to why the amendments proposed would lead to higher audit quality. In this context, it should be borne in mind that higher audit quality is only achieved through changing of behaviour by auditors, which is not necessarily achieved by setting standards, but through their application.

Appendix 4 is quite extensive and could benefit from having more concise conclusions that clearly set out the reasons for the decision to amend a specific provision. With these amendments to Appendix 4, FEE recommends that it is published as a “Basis for Conclusions” or, where appropriate guidance could be added to the text of the Standard. Both Basis for Conclusions and explanatory guidance is found very useful in practice, as acknowledged by other standard-setters, such as the IASB and the IAASB.

Press release

Comment letter



© FEE


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment