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Wachtell Lipton Discusses PCAOB Proposal to Expand Auditors’ Oversight Role

The Public Company Accounting Oversight Board (PCAOB) has proposed changes to its auditing standards that would significantly expand auditors’ responsibilities and oversight of a company’s noncompliance with laws and regulations.  If adopted as proposed, the rules would require auditors to play an active role in identifying, assessing and responding to noncompliance with laws and regulations, and would broaden the scope of auditor oversight to include such noncompliance.  While the proposal seeks to modernize standards that were last updated in 1988, the scope and nature of the proposed changes have raised concerns.

Two PCAOB Board Members with accounting and/or audit backgrounds—Duane DesParte and Christina Ho—have raisedconcerns about the proposed amendments which have been echoed in comment letters submitted to the PCAOB.  The concerns, which we believe to be well-founded, include the likelihood that the proposed changes would place undue burdens on auditors to duplicate existing internal compliance procedures and processes and other management functions, require auditors to make substantive judgments on legal and compliance matters requiring skills, knowledge and expertise beyond their professional competencies and expertise, and increase risk to the attorney-client privilege by significantly expanding the sharing of information around sensitive topics that are very likely to be the subject of attorney advice between companies and their auditors.  The proposed rules would also likely significantly increase the costs of audits, including legal costs to ensure auditors are properly complying with the rules.

The key proposed changes include:

The comment window for the PCAOB’s proposal closes on August 7, 2023.  Additional information regarding the rulemaking process and submitted comment letters can be found here.

This post comes to us from Wachtell, Lipton, Rosen & Katz. It is based on the firm’s memorandum, “PCAOB Proposal to Expand Auditors’ Oversight Role Raises Concerns,” dated July 31, 2023.

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