Modernizing accounting and auditing standards
A central theme of Hohl’s remarks was the need for standard-setting to be streamlined and cost-effective. In this regard, he sees a need for the FASB and PCAOB to focus on the following four areas:
- Convergence, leverage, learning: Hohl called for both the PCAOB and FASB to better collaborate with their international counterparts. He highlighted the benefits as reducing investor confusion, speeding up standard-setting, lowering compliance costs, and ultimately promoting more efficient capital markets.
- Agile standard-setting: Hohl is working with the FASB and PCAOB on being responsive to changes in the business environment that ultimately affect financial reporting and auditing. He is seeking to encourage greater preparer engagement at the proposal stage in both the FASB and PCAOB standard-setting process. He further emphasized the importance of robust cost-benefit analyses.
- Effective audit oversight: Hohl suggested that the PCAOB inspection process adapts to the changes in the quality control environment, focusing on evaluating the effectiveness of a firm’s holistic quality management systems, and not just inspecting individual engagements. He said this should be paired with changes to the inspection reports, including considering adding severities of deficiencies, all with the view of improving their usefulness to stakeholders.
- Consultation: In Hohl’s view, the PCAOB needs to be responsive to firms, perhaps through a consultation process similar to OCA’s process that is available to issuers. He highlighted that firms receiving interpretive guidance from the PCAOB before executing their audits will improve audit quality. Additionally, OCA staff reminded auditors that there is a process to contest findings in a PCAOB inspection report through OCA. They also reminded auditors and issuers that to the extent accounting matters are raised and disagreed upon during a PCAOB inspection, these may be raised by the issuer to OCA through its consultation process.
