The Public Company Accounting Oversight Board’s standards risk becoming the only auditing rules in the United States and abroad that aren’t connected to international guidelines, according to board member Bill Gradison.
“Unless PCAOB modifies the format of its standards writing, it may, in two years’ time, be the only standards writer not to use international standards as a base,” he said during a joint conference of the American Accounting Association Public Interest Section and the Academy of Accounting Historians on Friday morning.
As it is, auditors of U.S. companies rely on the PCOAB standards for public firms and those of the American Institute of Certified Public Accountants for private firms, while overseas auditors reference a variety of auditing-rule sets. More than 100 countries allow companies to use some version of the rules put out by the International Auditing and Assurance Standards Board (IAASB), and the AICPA is working on revisiting its standards to align them more with those of the IAASB during the next couple of years, according to Jim Sylph, executive director of professional standards for the International Federation of Accountants.
While the convergence of accounting standards has received ample attention by regulators and standard-setters in recent years, the auditing rules have not. However, accelerated attention by the Securities and Exchange Commission in the past year — after allowing foreign private issuers to submit their regulatory filings using international financial reporting standards (IFRS) without reconciling them to U.S. GAAP — could help Gradison’s case.
The SEC’s allowance elevated the possibility that U.S. companies will also be able to use IFRS. The changes in the accounting end of financial reporting “inevitably call attention to the variation in auditing standards both globally and within the United States and raises the question whether convergence of auditing standards is a desirable goal for standards writers here and abroad,” said Gradison.
Indeed, Gradison — who has been with the PCAOB since it was formed out of the Sarbanes-Oxley Act of 2002 — hopes to encourage his colleagues to give more attention to auditing convergence, according to Ron Boster, his special adviser. “He’s hoping the board will take it up as a priority issue,” Boster told CFO.com.
At the very least, the board will consider whether to move the issue “to the front burner” this year, according to Gradison. In its most recent strategic plan for the next five years, the PCAOB noted its commitment to “examine the implications for the PCAOB’s mission of multiple auditing standards and varying audit environments across global capital market and consider how the board should respond.”
The PCAOB has been in discussions with the IAASB, and the boards attend each other’s meetings; however, a formal convergence project has not gotten off the ground. Part of the reason, according to PCAOB board member Charles Niemeier, is that the auditing rules simply aren’t receiving the same political and regulatory pressure for convergence as the accounting standards.
That could begin to change, as more people are starting to pay attention to auditing convergence. Zoe-Vanna Palmrose, the SEC’s deputy chief accountant for auditing and professional practice issues, recently said her office considers the project a priority. Likewise, one of the antiregulation reports published last year by prominent business advocates suggested that the PCAOB take on a leadership role in standardizing global auditing standards, Gradison noted in his speech.
In addition, the comment letters to a proposed PCAOB policy statement regarding the inspections of overseas auditors have also called upon the board to pay more attention to the so-called harmonization of its standards with those of the IAASB. “The focus should be on how to achieve full international convergence of inspection and registration regimes, like in the area of accounting standards and auditing standards,” KPMG wrote, according to Gradison.
Similarly, audit and accounting consultancy Mazars noted that the practicality of different regulatory bodies enforcing auditors both in the United States and other countries would be improved if a single set of auditing standards existed.