SEC Approves PCAOB Proposals for Updated Audit Standards
On August 20, 2024, the Securities and Exchange Commission (SEC) approved two proposals from the Public Company Accounting Oversight Board (PCAOB) that update audit standards. These proposals focus on the general responsibilities of auditors and the use of technology-assisted analysis in conducting audits.
Updates to Audit Standards
The new AS 1000, General Responsibilities of the Auditor in Conducting an Audit, and related amendments to other PCAOB standards reinforce, consolidate, and modernize the general principles and responsibilities of auditors during an audit. These standards cover fundamental topics such as the auditor’s duty to protect investors by issuing informative, accurate, and independent auditor’s reports, exercising due professional care, skepticism, and judgment, and adhering to ethics and independence rules.
The SEC also approved the PCAOB’s amendments to AS 1105, Audit Evidence, and AS 2301, The Auditor’s Response to the Risks of Material Misstatement, as well as conforming amendments, to address the use of technology-assisted data analysis in audit procedures. These amendments specify and clarify auditors’ responsibilities when using analytical tools in audits.
Amendments to PCAOB Ethics Rule
The Commission also approved the PCAOB’s amendment to Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations, regarding the liability of an associated person of a registered public accounting firm who directly and substantially contributes to the firm’s violations. The amendment revises the standard for an associated person’s contributory liability from recklessness to negligence but maintains the requirement that the contribution must be direct and substantial.
Effective Dates of the Amendments
The amendments to Rule 3502 will take effect in 60 days and will not apply to conduct before the effective date. AS 1000 and related amendments to PCAOB standards will be effective for audits of financial statements for fiscal years beginning on or after December 15, 2024. However, the documentation completion date requirement amendment will take effect for audits of financial statements for fiscal years beginning on or after December 15, 2025, for firms that provide audit opinions for 100 or fewer issuers during the calendar year ending December 31, 2024.
The amendments to AS 1105 and AS 2301, as well as conforming amendments, will be effective for audits of financial statements for fiscal years beginning on or after December 15, 2025.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
