Statement on Supplemental Request for Comment: Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard — Dividing Responsibility for the Audit with Another Accounting Firm

Before the Board today is a refinement to the Board's April 2016 proposal to strengthen the auditing standards for the lead auditor's performance when other auditors participate in an audit. The 2016 proposal is designed to strengthen the existing requirements and impose a more uniform approach to the lead auditor's supervision of other auditors. The proposal is intended to increase the lead auditor's involvement in, and evaluation of, the work of other auditors, enhance the ability of the lead auditor to prevent or detect deficiencies in the work of other auditors, and facilitate improvements in the quality of the work of other auditors.

When more than one audit firm is involved in an audit, it is important for investor protection that the lead auditor assures that the audit is performed in accordance with PCAOB standards and that sufficient appropriate evidence is obtained to support the audit opinion. As described in the 2016 proposing release, the need for stronger standards in this area has become evident.

When the Board issued its 2016 proposal, we solicited public comments on various aspects of the proposal and PCAOB's supporting analyses.^[1]

Commenters generally supported the Board's objective of improving the quality of audits involving other auditors. In particular, a number of commenters supported the Board's consideration of a scalable, risk-based approach to the supervision of other auditors' work. Most commenters also agreed with retaining an option (currently in PCAOB standards) for the lead auditor to divide the responsibility for the audit with another accounting firm.

In my view, the proposed requirements, including the refinements to the 2016 proposal, will help to enhance audit quality in this area of increasing audit risk and significance to the capital markets. In some respects, the proposal would raise the bar for all audit firms to achieve a more consistent outcome of higher quality audits that involve the use of other auditors.

As described in the Supplemental Request for Comment before us today, several commenters expressed concerns or suggested clarifications related to certain aspects of the proposal. The significant comments on the proposal addressed the following areas:

• Planning, including the sufficiency of lead auditor's participation and other auditors' qualifications;
• Supervision, including the communication between auditors and supervision of multiple tiers of other auditors;
• Division of responsibility, including situations that involve differing financial reporting frameworks;
• Documentation, including the documentation of the lead auditor's review;
• Engagement quality review; and
• Definitions.

The release before the Board today addresses comments made in each of these areas and describes certain proposed revisions in each area, except for those related to engagement quality reviews and definitions.^[2] I support the consideration of the revisions to the proposal.

I call attention to the economic considerations put forward in today's Release related to the comments received. That discussion builds upon the considerations described in the 2016 proposing release related to the potential impacts of requirements for the scalable application of a risk-based approach to supervising the work of other auditors. The Release describes how the revisions to the Board's 2016 proposal would reinforce the scalability of the proposed requirements, which should mitigate some of the potential economic consequences faced by smaller firms.

As with the original proposal I look forward to receiving comments on both the operational and likely economic impacts of the revised proposal.

I want to thank the staff of the Office of the Chief Auditor, the Office of Economic and Risk Analysis, and the Office of the General Counsel for the hard work put into this project.