Statement on Quality Control in Auditing
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9 September 2024 The Securities and Exchange Commission is considering whether to approve a final standard regarding the quality control systems of audit firms. Without high-quality audits, investors won’t receive complete and truthful financial disclosures. Without strong quality control systems, auditors can’t consistently conduct high-quality audits. Nearly 70 years after the stock market crash of 1929, our financial system was once again breaking down. Fraud in financial reporting and accounting eventually led to historic bankruptcies, such as Enron and WorldCom. Congress responded by passing the Sarbanes-Oxley Act of 2002. Their vision led to reforms establishing the Public Company Accounting Oversight Board (PCAOB) as an independent watchdog over the auditors of public companies and registered broker-dealers. Previously, auditing standards were set by the American Institute of Certified Public Accountants (AICPA), a professional association. The profession was writing its own rules. That’s an inherent conflict. To correct course, the PCAOB was tasked with setting enhanced auditing standards. The expectation was that the Board would produce a more appropriate set of standards going forward. The existing PCAOB quality control standards, however, are still those that were carried over twenty-two years ago from the AICPA on an interim basis. The auditing profession has changed in the 21st century, and the Amendments we are considering today are long overdue. To put in context how important it is to update the quality control standards, the PCAOB found that 46 percent—nearly half—of the auditing engagements it reviewed in 2023 fell short of obtaining sufficient appropriate audit evidence. To find out more details please visit : https://www.sec.gov/ |