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Enter the PCAOB

    Enter The PCAOB

    The PCAOB’s (Public Company Accounting Oversight Board) was established in 2002 by Congress, states independence standards clearly set forth that under certain qualifying conditions, proposing audit adjustments (without regard to their number, nature, or significance) for review and acceptance by management does not impair audit independence (PCAOB Interim Ethics section ET .05.101-3).

    The PCAOB asserts that the term “mis-statements” should be understood to include “omission and presentation of inaccurate or incomplete disclosures” [Auditing Standard (AS) 1301.18-19; 2810.2, footnote 13]. This supports the view that additions or editorial corrections to note disclosures are, in fact, audit adjustments “other than those that are clearly trivial,” and similarly must be communicated to audit committees as such (AS 1301.19).

    The need for tighter controls by the SEC on audit assistance and adjustments dates as far back as 1957. And with the crash of ENRON, ARTHUR ANDERSEN AND WORLDCOM it was very apparent that something needed to be done to bring the gap without betrothing the process thereof. Auditors DO have the flexibility to work closely with the company as long as the accounting systems are approved by the company board and NOT the auditing firm.

    “Specifically, questions have been raised in recent years as to the extent to which an auditor can assist an issuer client with the drafting or editing of note disclosures without being viewed as auditing his own work or “closely participating” by performing a management function. Since an auditor’s opinion is not piecemeal with regard to note disclosures, but rather applies to the financial statements (including the accompanying notes) taken as a whole, this author believes that assessing the effect of such drafting is rightfully a matter of degree—and also a matter of professional judgment.”- Howard B. Levy, CPA

    The purpose of audit independence and accounting assistance and advice is to protect both parties involved. The controls put in place may seem a binding to firms and their clients, but like all things with rules and laws it ultimately creates challenge and growth. And growth and challenge always raises the bar for all to achieve a new level of excellence. The scales of balance must always be the utmost importance and always forefront of mind for these three reasons alone: 1) a clean conscious, 2) pride of the profession, and 3) the credibility of financial accounting and reporting!