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November 14, 2008

PCAOB advisory group to focus on committee reports

Topics the US Public Company Accounting Oversight Board (PCAOB) expects to seek advice from its Standing Advisory Group (SAG) on during the coming year will likely relate to recommendations from two federal advisory committees that recently concluded activities in the US.

The SAG was formed in 2003 to provide input and advice to the PCAOB on its standard-setting activities. It recently announced the new appointments and re-appointments for the 2009-2010 term.

The two federal advisory committees were the Securities and Exchange Commission’s committee on improvements to financial reporting and the US Treasury Department’s advisory committee on the auditing profession.

“As we work though those recommendations, there will be aspects of those that we will be seeking the advice from the Standing Advisory Group on,” PCAOB chief auditor and director of professional standards Thomas Ray said.

The board has already sought the SAG’s advice on two of the recommendations in the Treasury committee report. One recommendation was that the PCAOB consider whether it is feasible to develop indicators of audit quality.

“We would expect that to be a pretty significant issue for the PCAOB in the near term,” Ray said.

The board also sought the group’s advice on the recommendation that the PCAOB require the individual audit partner who is responsible for an audit to personally sign his or her name on the audit opinion.

In October, the PCAOB held its annual SAG meeting, where it sought the group’s input on its standard-setting activities for the year ahead.

“They affirmed our view that we should be focused on standard setting relating to the auditor’s assessment of and response to risk, standards relating to fair value and use of specialists and how to audit estimates in financial statements. Also, the use of audit confirmations in the audit process as well as auditing related parties and related party transactions,” Ray said.

As the PCAOB’s chief auditor and director of professional standards, Ray expects much of his work in the year ahead will involve focusing on the current economic conditions.

“We want to make sure we are aware and can anticipate the effect of these conditions on auditors of public companies,” he said.

Another issue the board consulted the SAG on in the October meeting was its view on the impact of current economic climate on auditors of financial statements and whether the PCAOB should be taking any actions.

“We did get some pretty strong advice from them that we should consider issuing some additional guidance or some alert to auditors to help them through this process. And that is something that is under consideration at the board now,” Ray said.

The board’s staff have already issued two audit practice alerts relating to the financial crisis. The most recent was last December and dealt with auditing fair value measurement.

“What these do generally is highlight matters that are of particular importance at the time, to help direct auditors to focus their attention on areas where we see risk of financial statement misstatement,” Ray said.

Carolyn Canham

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