The Securities and Exchange Commission (SEC) announced that it approved three standard-setting and rule-making actions by the Public Company Accounting Oversight Board (PCAOB),
Specifically, the SEC approved AS 1000, "General Responsibilities of the Auditor in Conducting an Audit," along with related amendments to other PCAOB standards; changes to PCAOB standards that clarify certain auditor responsibilities when using technology assisted analysis; and amendments to PCAOB Rule 3502, "Responsibility Not to Knowingly or Recklessly Contribute to Violations."
AS 1000 will "reaffirm, consolidate, and modernize the general principles and responsibilities of the auditor when conducting an audit,” the SEC stated.
“AS 1000 will help ensure that PCAOB standards are clear, consistent, and up to date when it comes to auditing fundamentals such as due professional care, professional skepticism, competence, and professional judgment,” said PCAOB Chair Erica Y. Williams in a statement. “By replacing a group of standards that had not changed significantly since their adoption on an interim basis in 2003, the new standard also advances the Board’s strategic goal to modernize standards.
Thee PCAOB's amendments to AS 1105, "Audit Evidence," and AS 2301, "The Auditor's Response to the Risks of Material Misstatement," and conforming amendments, address the use of technology-assisted data analysis in audit procedures. The changes specify and clarify the responsibilities of auditors when they use such analytical tools in conducting audits, Accounting Today reported.
The “updates related to technology-assisted analysis reduce the risk that auditors who use technology-assisted analysis will issue an opinion without obtaining relevant and reliable audit evidence,” said Williams. “The changes also modernize certain aspects of two essential PCAOB standards so they keep up with the increasing use of technology by auditors and preparers of financial statements.”
The changes to Rule 3502 would change the standard for an associated person's contributory liability for a firm violation from "recklessness" to "negligence"—although it would maintain the requirement that the person have "directly and substantially" contributed to the violation.
"[O]ur update to Rule 3502 enables the PCAOB to hold associated persons accountable when they negligently, directly, and substantially contribute to firms’ violations," said Williams. "With this rulemaking, which updates a rule that is nearly 20 years old, the Board has aligned PCAOB rules to what investors expect: that when an associated person’s negligence directly and substantially contributes to firm violations, the PCAOB has tools to hold them accountable.
"The amendments to Rule 3502 are critical because moving the PCAOB contributory liability standard from recklessness to negligence aligns the rule with other negligence-based professional conduct standards, including the standard for sanctions by the commission for individuals negligently contributing to firm violations as well as certain state professional licensing requirements, that have long governed the accounting profession," said the SEC's chief accountant, Paul Munter, in a statement. "It also aligns the rule with the same standard of reasonable care that auditors are required to exercise when executing their professional duties."
The amendments to Rule 3502 will become effective in 60 days. The amendment does not apply to conduct before the effective date.
AS 1000, and other related amendments to PCAOB standards, will take effect for audits of financial statements for fiscal years beginning on or after Dec. 15, 2024; however, for firms that provide audit opinions for 100 or fewer issuers during the calendar year ending Dec. 31, 2024, the amendment related to the documentation completion date requirement will take effect for audits of financial statements for fiscal years beginning on or after Dec. 15, 2025.
The amendments to AS 1105 and AS 2301, and conforming amendments, will take effect for audits of financial statements for fiscal years beginning on or after Dec. 15, 2025.