Current Developments
at the PCAOB
Ensuring Integrity: 3rd Annual Auditing
Conference at Baruch College
December 4, 2008
Thomas Ray, CPA
Chief Auditor and Director of Professional Standards
Public Company Accounting Oversight Board
The views Mr. Ray expresses are his and
do not necessarily reflect the views of the
Board, individual Board members, or other
members of the Board’s staff.
Overview
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Key features: new and proposed standards
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Evaluating consistency
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GAAP hierarchy
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Communications about independence
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Amendment to Rule 3523
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Engagement quality review
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Risk assessment
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Other standards setting priorities
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Risks arising in current environment
Evaluating Consistency
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Auditing Standard No. 6 will supersede
AU sec. 420 and its interpretations
Aligns with FASB Statement 154
AS 6 –
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Requires the auditor to evaluate consistency
and report on inconsistencies
Describes the periods subject to evaluation
Clarified that the evaluation should include
evaluation of previously issued financials
Evaluating Changes in Accounting
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AS 6 also requires the auditor to evaluate a
change in accounting principle that has a
material effect on the financial statements to
determine whether –
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The newly adopted accounting principle is a
generally accepted accounting principle,
The method of accounting for the effect of the
change is in conformity with generally accepted
accounting principles,
The disclosures related to the accounting change
are adequate, and
The company has justified that the alternative
accounting principle is preferable.
Reporting on Inconsistencies
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When previously issued financial
statements have been adjusted, the
auditor should identify the nature of the
change in his or her report
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“… the company has changed its method of
accounting …”
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“… the 200X financial statements have been
restated to correct a misstatement …”
Applies to all material error corrections
Changes in Classification
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Changes in classification need not be
recognized in the auditor’s report, unless
the change represents either –
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A change in accounting principle
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The correction of a material misstatement
GAAP Hierarchy
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Amendments to AU sec. 411 remove the
GAAP hierarchy from the auditing
standards
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The FASB Statement 162 incorporates the
hierarchy into the accounting standards
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Effective dates are coordinated
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AU 411 now refers the auditor to the SEC
requirements for the company under
audit
Evaluation of Fair Presentation
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The auditor's opinion that financial statements are fairly
presented in conformity with GAAP should be based on
his or her judgment as to whether –
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the accounting principles selected have general acceptance;
the accounting principles are appropriate in the circumstances;
the financial statements, including the related notes, are
informative of matters that may affect their use, understanding,
and interpretation;
the information presented in the financial statements is
classified and summarized in a reasonable manner, that is,
neither too detailed nor too condensed; and
the financial statements reflect the underlying transactions and
events within a range of acceptable limits, that is, limits that are
reasonable and practicable to attain in financial statements.
Source: Summarized from AU sec. 411.04.
Independence Communications
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Rule 3526, Communication With Audit
Committees Concerning Independence,
will supersede ISB No. 1 and its
interpretations
Requires auditor to communicate to the
audit committee relationships that may
reasonably be thought to bear on the
auditor's independence
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Prior to accepting an initial engagement
Annually thereafter
Communication Requirements
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In writing
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Discuss with the audit committee the
potential effects of the relationships
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Document the substance of the discussion
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Annually must affirm to the audit
committee in writing that the audit firm is
independent in compliance with Rule
3520
Tax Services to Executives

Amended Rule 3523, Tax Services for
Persons in Financial Reporting Oversight
Roles
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Prohibition was amended to apply only to
the professional engagement period
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Objective of change was to avoid
unnecessary restriction on choice of
auditor
Engagement Quality Review
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Proposed auditing standard would replace
interim SECPS concurring partner review
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Would apply to all registered firms and all
engagements conducted pursuant to the
standards of the PCAOB
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Comment period ended on May 12, 2008
Engagement Quality Review
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Some features similar to interim standard
and standards of IAASB
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Competence
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Independence, integrity and objectivity
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Standard procedures
Some features are different
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Explicit risk focus
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Concurring approval of issuance
Concurring Approval of Issuance
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Reviewer must not provide concurring
approval of issuance if he or she knows,
or should know based on the
requirements of the standard, that –
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Team failed to obtain sufficient competent
evidence
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Team reached an inappropriate conclusion
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The report is not appropriate, or
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The firm is not independent
Proposed Auditing Standards Related to
Risk Assessment
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PCAOB Release No. 2008-006 –
“Proposed Auditing Standards Related to
the Auditor's Assessment of and
Response to Risk and Conforming
Amendments to PCAOB Standards”
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Released October 21, 2008
Proposed Auditing Standards Related to
Risk Assessment
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Audit Risk in an Audit of Financial Statements
Audit Planning and Supervision
Identifying and Assessing Risks of Material
Misstatement
The Auditor's Responses to the Risks of Material
Misstatement
Evaluating Audit Results
Consideration of Materiality in Planning and
Performing an Audit
Audit Evidence
Conforming Amendments
Significant Features of Risk Standards
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Reflect more risk-based audit approaches
Enhance the integration of the audit of
financial statements with audit of internal
control over financial reporting
Integrate the auditor’s current
responsibilities for considering fraud
Reduce unnecessary differences with risk
assessment standards of other standardsetters
Comment Period
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Available through PCAOB website at
http://www.pcaobus.org/Rules/Docket_02
6/index.aspx

120-day comment period ends on
February 18, 2009
Other standards setting priorities
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Fair Value
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Specialists
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Related Parties
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Confirmations
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Recommendations from Federal advisory
committees
Risks Arising in Current Environment
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Staff Audit Practice Alert No. 2 still relevant
Fair value measurements and disclosures
Other than temporary impairment
Accounting estimates, risk of fraud
Disclosure about risks and uncertainties
Valuation of loans
Valuation of goodwill, other intangibles and
long-lived assets
Postretirement benefits
Going concern