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Posted by Admin Posted on Apr 01 2011

The Public Company Accounting Oversight Board (PCAOB) may be considering an expansion of the auditor's role and responsibility.

A recent staff paper from the PCAOB seems to suggest that the huge increase in qualitative information in financial statements has increased the possibility for material misstatements.  While some academics welcome the reconsideration, others note that it could be considered an attempt to offload the user's responsiblities onto the auditors, and practicing CPAs worry about increased liability.

It sounds like the PCAOB is asking auditors to move away from the numeric audit concept, under which they test the numbers, to a more holistic approach that questions whether management is releasing numbers that are not only accurate but meaningful.  Using this concept 10 years ago might have stopped Arthur Andersen from giving Enron clean audit opinions on questionable transactions.

Expect this kind of change to increase the cost of audits as auditors increase their tests to accomodate new requirements.  At the same time, this approach could "de-commodify"audits of financial statements; with a value proposition to sell, auditing firms should be able to exercise more control over pricing.

This should be interesting.