Public Company Accounting Oversight Board; Order Approving Proposed Rules on Auditing Standards Related to the Auditor's Assessment of and Response to Risk and Related Amendments to PCAOB Standards, 82417-82419 [2010-32885]
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Notices
the information to monitor principal
trades in their accounts.
The Commission staff estimates that
approximately 380 investment advisers
make use of rule 206(3)–3T, including
an estimated 24 advisers (on an annual
basis) also registered as broker-dealers
who do not offer non-discretionary
services, but whom the Commission
staff estimates will choose to do so and
rely on rule 206(3)–3T. The Commission
staff estimates that these advisers spend,
in the aggregate, approximately 378,992
hours annually in complying with the
requirements of the rule, including both
initial and annual burdens. The
aggregate hour burden, expressed on a
per-eligible-adviser basis, is therefore
approximately 997 hours per eligible
adviser (378,992 hours divided by the
estimated 380 advisers that will rely on
rule 206(3)–3T).
Written comments are invited on:
(a) Whether the collections of
information are necessary for the proper
performance of the functions of the
Commission, including whether the
information has practical utility; (b) the
accuracy of the Commission’s estimate
of the burdens of the collections of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burdens of the collections
of information on respondents,
including through the use of automated
collection techniques or other forms of
information technology. Consideration
will be given to comments and
suggestions submitted in writing within
60 days of this publication.
Please direct your written comments
to Thomas Bayer, Director/CIO,
Securities and Exchange Commission,
C/O Remi Pavlik-Simon, 6432 General
Green Way, Alexandria, VA 22312; or
send an e-mail to:
PRA_Mailbox@sec.gov.
Dated: December 27, 2010.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–32941 Filed 12–29–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63606; File No. PCAOB
2010–01]
Public Company Accounting Oversight
Board; Order Approving Proposed
Rules on Auditing Standards Related
to the Auditor’s Assessment of and
Response to Risk and Related
Amendments to PCAOB Standards
December 23, 2010.
I. Introduction
On September 15, 2010, the Public
Company Accounting Oversight Board
(the ‘‘Board’’ or the ‘‘PCAOB’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) a
notice (the ‘‘Notice’’) of proposed rules
(File No. PCAOB 2010–01) on Auditing
Standards Related to the Auditor’s
Assessment of and Response to Risk and
Related Amendments to PCAOB
Standards. Those eight auditing
standards (hereinafter referred to as
‘‘Risk Assessment Standards’’), which
will supersede six of the Board’s interim
auditing standards, are:
• Auditing Standard (‘‘AS’’) No. 8,
Audit Risk;
• AS No. 9, Audit Planning;
• AS No. 10, Supervision of the Audit
Engagement;
• AS No. 11, Consideration of
Materiality in Planning and Performing
an Audit;
• AS No. 12, Identifying and
Assessing Risks of Material
Misstatement;
• AS No. 13, The Auditor’s Responses
to the Risks of Material Misstatement;
• AS No. 14, Evaluating Audit
Results; and
• AS No. 15, Audit Evidence.
Notice of the proposed rules was
published in the Federal Register on
September 27, 2010.1 The Commission
received two comment letters relating to
the proposed rules. For the reasons
discussed below, the Commission is
granting approval of the proposed rules.
As specified by the Board, the rules are
effective for audits of fiscal years
beginning on or after December 15,
2010.
jlentini on DSKJ8SOYB1PROD with NOTICES
II. Description
The Board adopted eight auditing
standards and related amendments that
are designed to benefit investors by
establishing requirements that enhance
the effectiveness of the auditor’s
1 See Release No. 34–62919 (September 15, 2010)
[75 FR 59332 (September 27, 2010)]. The notice
included a 21-day comment period. The comment
period closed on October 18, 2010.
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82417
assessment of and response to the risks
of material misstatement in an audit.
Assessing and responding to risks
underlies the entire audit process. The
risk assessment standards that the
PCAOB is replacing were part of the
Board’s interim standards and were in
large part written twenty to thirty years
ago. In adopting the new Risk
Assessment Standards, the Board
intended to build upon and improve the
risk framework that was already
established by the interim standards,
rather than replacing that framework
altogether.
Changes that the Board made to the
interim standards reflect: Improvements
that the PCAOB has observed in the
audit methodologies of many registered
firms; recommendations from academia;
recommendations from the Board’s
Standing Advisory Group (‘‘SAG’’) and
other groups; the adoption of AS No. 5,
An Audit of Internal Control Over
Financial Reporting That is Integrated
with an Audit of Financial Statements;
improvements made to similar risk
assessment standards by other standard
setters (e.g., the International Auditing
and Assurance Standards Board
(‘‘IAASB’’) and the Auditing Standards
Board (‘‘ASB’’) of the American Institute
of Certified Public Accountants); and
observations from the Board’s oversight
activities.
Key changes made to the standards
include an increased emphasis on fraud
risks, an increased emphasis on
disclosures, inclusion of multi-location
audit requirements, an alignment of the
standards with AS No. 5, and inclusion
of a concept of materiality more
specifically grounded to that used in the
Federal securities laws.
III. Discussion
The Commission received two
comment letters: One from Deloitte &
Touche, LLP (‘‘Deloitte’’) and one from
the Center for Capital Markets
Competitiveness of the U.S. Chamber of
Commerce (‘‘CMCC’’). Deloitte
supported approval of the standards,
while expressing certain concerns
largely of a more general nature
regarding the PCAOB’s approach to
standard-setting. The CMCC believed
that the Risk Assessment Standards
should not be approved, but rather sent
back to the PCAOB in order for the
PCAOB to address certain concerns,
most of which also related to the
PCAOB’s overall approach to standardsetting as opposed to the particular
standards at issue.
E:\FR\FM\30DEN1.SGM
30DEN1
82418
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Notices
Integration of Fraud Risk Standard Into
the Risk Assessment Standards
One of the significant changes to the
Risk Assessment Standards was the
incorporation of aspects of AU sec. 316,
Consideration of Fraud in a Financial
Statement Audit, into the Risk
Assessment Standards. In explaining
why the PCAOB incorporated portions
of the fraud standard into the Risk
Assessment Standards, it stated that:
Incorporating these requirements makes
clear that the auditor’s responsibilities for
assessing and responding to fraud risks are
an integral part of the audit process rather
than a separate, parallel process. It also
benefits investors by prompting auditors to
make a more thoughtful and thorough
assessment of fraud risks and to develop
appropriate audit responses.2
jlentini on DSKJ8SOYB1PROD with NOTICES
The CCMC did not agree with the
level of integration. The CCMC made a
similar comment during the PCAOB’s
due process stage, which the Board
addressed in its adopting release. This
comment largely relates to a
disagreement as to the manner in which
the standards are constructed, as
compared to the performance required
of auditors. The Commission believes
that the PCAOB has given due
consideration to the comments received
about this matter.
Effective Date
The effective date of the standards
will be for audits of fiscal years
beginning on or after December 15,
2010. The CMCC expressed concern
about the effective date, stating that the
effective date ‘‘would not allow
adequate time for audit firms to revise
their audit methodologies and train
their audit staffs around the world for
audits in 2011.’’ In response to similar
concerns raised in its comment letter
process, including from the CCMC, the
PCAOB stated in its release that the
underlying concepts of risk-based
auditing have not changed, and
therefore, while there are many
incremental requirements in the
updated standards, these standards
should not require wholesale changes to
audit methodologies.3 Any delay in the
effective date of these standards would
likely delay the implementation for
most issuers for at least one year (e.g.,
the standards would not be applicable
generally until calendar year 2012
audits related to audit reports to be
issued in 2013).
After considering the nature of the
changes in the Risk Assessment
2 PCAOB Release No. 2010–004, August 5, 2010,
p. 3.
3 PCAOB Release No. 2010–004, August 5, 2010,
p. 8.
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Standards, the timing of Commission
approval, and the fact that the standards
will not be applicable to audits for
which audit reports will be issued in
2011 (i.e., the first audit reports issued
for which audits would be required to
be conducted using the new standards
would not be issued until 2012) we
believe the PCAOB’s approach for
implementation is not unreasonable.
PCAOB Standard-Setting Process
Both commenters noted various
concerns about the PCAOB’s standardsetting process. The concerns identified
included divergence from other
standard-setters, what the commenters
viewed as a ‘‘prescriptive’’ nature of the
standards, the lack of a codification of
PCAOB standards, the usefulness of the
appendix that compares the PCAOB
proposed standard to the similar
standards of other standard-setters, and
the use of certain terms in the standards.
These comments all relate more to the
PCAOB’s overall approach to standardsetting than particular concerns with
respect to the individual Risk
Assessment Standards.
All of these comments are similar to
those received by the PCAOB during its
standard-setting process, which the
Board addressed. For example with
respect to divergence from other
standard-setters, the Board noted the
following:
In previous releases on its proposed risk
assessment standards, the Board has stated
that it has sought to eliminate unnecessary
differences with the risk assessment
standards and those of other standardssetters. However, because the Board’s
standards must be consistent with the
Board’s statutory mandate, differences will
continue to exist between the Board’s
standards and the standards of the IAASB
and ASB, e.g., when the Board decides to
retain an existing requirement in PCAOB
standards that is not included in IAASB or
ASB standards. Also, certain differences are
often necessary for the Board’s standards to
be consistent with relevant provisions of the
federal securities laws or other existing
standards or rules of the Board.4
The Board also noted that it
‘‘continually endeavors to improve its
processes’’ and explained other
initiatives it uses in both gaining input
on its standard-setting activities (e.g.,
through its SAG and by releasing
multiple exposure documents) and
providing additional transparency of its
standards-setting process (e.g., through
posting its standards-setting agenda and
enhanced discussions in its releases on
the Board’s conclusions). The
4 See PCAOB Release No. 2010–004, August 5,
2010, pp. A10–91—A10–92 (internal footnotes
omitted).
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Commission notes and encourages the
Board’s efforts to consider standards
issued by the IAASB and the ASB, and
appreciates the reasons why it is
reasonable to expect that the Board’s
standards may appropriately differ from
such standards. The Commission and its
staff will continue to provide oversight
of the Board and its staff’s ongoing
endeavor to improve its processes.
Regarding the ‘‘prescriptive’’ nature of
the standards, we recognize that there
should be an appropriate balance in
auditing standards between providing
necessary minimum requirements and
allowing auditors to apply judgment in
determining the nature and extent of
audit procedures given the particular
circumstances of an individual
engagement. PCAOB standards
recognize that the auditor uses judgment
in planning and performing audit
procedures and evaluating the evidence
obtained from those procedures. We
recognize, however, that overly broad
standards without an appropriate
balance of necessary requirements could
lead to a level of discretion in the nature
and extent of audit procedures that may
limit the effectiveness of audits. The
Commission believes the PCAOB’s
approach in the Risk Assessment
Standards is not unreasonable and
encourages the PCAOB to monitor
implementation and evaluate the input
received during the development of
future standards to continue to strive to
achieve an optimal balance.
Regarding a codification of the
auditing standards, the Commission
notes that the Board has recently added
this project to its strategic plan and
amended its performance measure on
standard-setting activities to reflect this
new initiative.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
PCAOB Rules on Auditing Standards
Related to the Auditor’s Assessment of
and Response to Risk and Related
Amendments to PCAOB Standards (File
No. PCAOB–2010–01) are consistent
with the requirements of the SarbanesOxley Act of 2002, as amended (the
‘‘Act’’) and the securities laws and are
necessary or appropriate in the public
interest or for the protection of
investors.
It is therefore ordered, pursuant to
Section 107 of the Act and Section
19(b)(2) of the Securities Exchange Act
of 1934, that the proposed PCAOB Rules
on Auditing Standards Related to the
Auditor’s Assessment of and Response
to Risk and Related Amendments to
PCAOB Standards (File No. PCAOB–
2010–01) be and hereby are approved.
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Notices
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–32885 Filed 12–29–10; 8:45 am]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63603; File No. SR–Phlx–
2010–180]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Revising Floor
Qualification Examination
December 22, 2010
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on December
10, 2010, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change, and an amendment thereto
on December 15, 2010, as described in
Items I, II, and III, below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change, as amended, from
interested persons.3
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to revise its
floor qualification examination.
Specifically, the Exchange proposes to
delete obsolete questions, revise
outdated questions and add several new
questions, as described further below.
jlentini on DSKJ8SOYB1PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Amendment No. 1.
2 17
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The purpose of the proposed rule
change is to improve the Exchange’s
program for qualification of members by
updating its floor qualification
examination. The Exchange has
employed a written floor qualification
examination, which is required for
persons seeking to act as members on
the trading floor,4 for many years. The
examination, which has not been
substantively amended for many years,5
covers many areas of the Exchange’s
rules.
At this time, the Exchange proposes to
update the exam in a variety of ways.
The exam would continue to be
comprised of 100 questions, randomly
and electronically selected from a
question bank of approximately 148
questions. The floor qualification
examination is administered by the
Exchange’s membership department,
and requires a passing score of 70
during a 75 minute testing period.
In terms of outdated questions, the
Exchange proposes to delete about 31
obsolete questions, mostly pertaining to:
(i) The ‘‘Wheel,’’ an obsolete method of
allocating trades among specialist and
Registered Options Traders (‘‘ROTs’’);
(ii) ‘‘AUTO–X’’ functionality and
specialists manually conducting an
opening and executing trades, which
have been replaced by the current
trading system, Phlx XL II; and (iii) the
‘‘ten-up’’ guarantees that preceded
displayed size for options and the
application of the Quote Rule to
options.6
The Exchange also proposes to
eliminate the foreign currency options
qualification examination, because there
have been no foreign currency options
participants for many years.7 In
addition, the Exchange no longer offers
the foreign currency options products
that were the subject of this
examination, but rather now offers a
U.S. dollar-settled foreign currency
option,8 which trades pursuant to the
4 See Rules 620(a) and 901(c). See also Rule 1061
applicable to Floor Brokers.
5 Securities Exchange Act Release No. 33304
(December 9, 1993), 58 FR 65613 (December 15,
1993)(SR–Phlx–92–34).
6 For current requirements, see e.g., Rules 1080
and 1082.
7 The Exchange intends to separately delete
‘‘foreign currency options participant’’ and related
terms from its rules.
8 See Securities Exchange Act Release No. 54989
(December 21, 2006), 71 FR 78506 (December 29,
2006)(SR–Phlx–2006–34).
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82419
Exchange’s options trading rules that are
covered on the floor qualification exam.
The Exchange proposes to modify
approximately 17 questions pertaining
to electronic quoting, various changes in
priority rules and to reflect the existence
of Options Exchange Officials (‘‘OEOs’’),
who replaced Floor Officials, as well as
make various minor corrections
reflecting rule changes over time.
Similarly, the Exchange proposes to add
approximately 46 new questions
reflecting trade reporting, disputes and
OEO rulings, priority and trade
allocation, spreads, openings, halts and
reopening, quoting obligations, order
types, Floor Broker obligations and Rule
703.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 9 in general, and furthers the
objectives of Section 6(b)(5) of the Act 10
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest. In addition, the
Exchange believes that the proposed
rule change is consistent with Section
6(c)(3)(B) of the Act,11 which authorizes
exchanges to prescribe standards of
training, experience and competence for
persons associated with exchange
members, and gives exchanges the
authority to bar a natural person from
becoming a member or a person
associated with a member, if the person
does not meet the standards of training,
experience and competence prescribed
in the rules of the exchange. The
Exchange believes that revising its floor
member qualification examination
should better test the knowledge of its
floor members, and thereby enhance the
Exchange’s standards for training,
experience and competence.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
11 15 U.S.C. 78f(c)(3)(B).
10 15
E:\FR\FM\30DEN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 250 (Thursday, December 30, 2010)]
[Notices]
[Pages 82417-82419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32885]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63606; File No. PCAOB 2010-01]
Public Company Accounting Oversight Board; Order Approving
Proposed Rules on Auditing Standards Related to the Auditor's
Assessment of and Response to Risk and Related Amendments to PCAOB
Standards
December 23, 2010.
I. Introduction
On September 15, 2010, the Public Company Accounting Oversight
Board (the ``Board'' or the ``PCAOB'') filed with the Securities and
Exchange Commission (the ``Commission'') a notice (the ``Notice'') of
proposed rules (File No. PCAOB 2010-01) on Auditing Standards Related
to the Auditor's Assessment of and Response to Risk and Related
Amendments to PCAOB Standards. Those eight auditing standards
(hereinafter referred to as ``Risk Assessment Standards''), which will
supersede six of the Board's interim auditing standards, are:
Auditing Standard (``AS'') No. 8, Audit Risk;
AS No. 9, Audit Planning;
AS No. 10, Supervision of the Audit Engagement;
AS No. 11, Consideration of Materiality in Planning and
Performing an Audit;
AS No. 12, Identifying and Assessing Risks of Material
Misstatement;
AS No. 13, The Auditor's Responses to the Risks of
Material Misstatement;
AS No. 14, Evaluating Audit Results; and
AS No. 15, Audit Evidence.
Notice of the proposed rules was published in the Federal Register on
September 27, 2010.\1\ The Commission received two comment letters
relating to the proposed rules. For the reasons discussed below, the
Commission is granting approval of the proposed rules. As specified by
the Board, the rules are effective for audits of fiscal years beginning
on or after December 15, 2010.
---------------------------------------------------------------------------
\1\ See Release No. 34-62919 (September 15, 2010) [75 FR 59332
(September 27, 2010)]. The notice included a 21-day comment period.
The comment period closed on October 18, 2010.
---------------------------------------------------------------------------
II. Description
The Board adopted eight auditing standards and related amendments
that are designed to benefit investors by establishing requirements
that enhance the effectiveness of the auditor's assessment of and
response to the risks of material misstatement in an audit. Assessing
and responding to risks underlies the entire audit process. The risk
assessment standards that the PCAOB is replacing were part of the
Board's interim standards and were in large part written twenty to
thirty years ago. In adopting the new Risk Assessment Standards, the
Board intended to build upon and improve the risk framework that was
already established by the interim standards, rather than replacing
that framework altogether.
Changes that the Board made to the interim standards reflect:
Improvements that the PCAOB has observed in the audit methodologies of
many registered firms; recommendations from academia; recommendations
from the Board's Standing Advisory Group (``SAG'') and other groups;
the adoption of AS No. 5, An Audit of Internal Control Over Financial
Reporting That is Integrated with an Audit of Financial Statements;
improvements made to similar risk assessment standards by other
standard setters (e.g., the International Auditing and Assurance
Standards Board (``IAASB'') and the Auditing Standards Board (``ASB'')
of the American Institute of Certified Public Accountants); and
observations from the Board's oversight activities.
Key changes made to the standards include an increased emphasis on
fraud risks, an increased emphasis on disclosures, inclusion of multi-
location audit requirements, an alignment of the standards with AS No.
5, and inclusion of a concept of materiality more specifically grounded
to that used in the Federal securities laws.
III. Discussion
The Commission received two comment letters: One from Deloitte &
Touche, LLP (``Deloitte'') and one from the Center for Capital Markets
Competitiveness of the U.S. Chamber of Commerce (``CMCC''). Deloitte
supported approval of the standards, while expressing certain concerns
largely of a more general nature regarding the PCAOB's approach to
standard-setting. The CMCC believed that the Risk Assessment Standards
should not be approved, but rather sent back to the PCAOB in order for
the PCAOB to address certain concerns, most of which also related to
the PCAOB's overall approach to standard-setting as opposed to the
particular standards at issue.
[[Page 82418]]
Integration of Fraud Risk Standard Into the Risk Assessment Standards
One of the significant changes to the Risk Assessment Standards was
the incorporation of aspects of AU sec. 316, Consideration of Fraud in
a Financial Statement Audit, into the Risk Assessment Standards. In
explaining why the PCAOB incorporated portions of the fraud standard
into the Risk Assessment Standards, it stated that:
Incorporating these requirements makes clear that the auditor's
responsibilities for assessing and responding to fraud risks are an
integral part of the audit process rather than a separate, parallel
process. It also benefits investors by prompting auditors to make a
more thoughtful and thorough assessment of fraud risks and to
develop appropriate audit responses.\2\
---------------------------------------------------------------------------
\2\ PCAOB Release No. 2010-004, August 5, 2010, p. 3.
The CCMC did not agree with the level of integration. The CCMC made
a similar comment during the PCAOB's due process stage, which the Board
addressed in its adopting release. This comment largely relates to a
disagreement as to the manner in which the standards are constructed,
as compared to the performance required of auditors. The Commission
believes that the PCAOB has given due consideration to the comments
received about this matter.
Effective Date
The effective date of the standards will be for audits of fiscal
years beginning on or after December 15, 2010. The CMCC expressed
concern about the effective date, stating that the effective date
``would not allow adequate time for audit firms to revise their audit
methodologies and train their audit staffs around the world for audits
in 2011.'' In response to similar concerns raised in its comment letter
process, including from the CCMC, the PCAOB stated in its release that
the underlying concepts of risk-based auditing have not changed, and
therefore, while there are many incremental requirements in the updated
standards, these standards should not require wholesale changes to
audit methodologies.\3\ Any delay in the effective date of these
standards would likely delay the implementation for most issuers for at
least one year (e.g., the standards would not be applicable generally
until calendar year 2012 audits related to audit reports to be issued
in 2013).
---------------------------------------------------------------------------
\3\ PCAOB Release No. 2010-004, August 5, 2010, p. 8.
---------------------------------------------------------------------------
After considering the nature of the changes in the Risk Assessment
Standards, the timing of Commission approval, and the fact that the
standards will not be applicable to audits for which audit reports will
be issued in 2011 (i.e., the first audit reports issued for which
audits would be required to be conducted using the new standards would
not be issued until 2012) we believe the PCAOB's approach for
implementation is not unreasonable.
PCAOB Standard-Setting Process
Both commenters noted various concerns about the PCAOB's standard-
setting process. The concerns identified included divergence from other
standard-setters, what the commenters viewed as a ``prescriptive''
nature of the standards, the lack of a codification of PCAOB standards,
the usefulness of the appendix that compares the PCAOB proposed
standard to the similar standards of other standard-setters, and the
use of certain terms in the standards. These comments all relate more
to the PCAOB's overall approach to standard-setting than particular
concerns with respect to the individual Risk Assessment Standards.
All of these comments are similar to those received by the PCAOB
during its standard-setting process, which the Board addressed. For
example with respect to divergence from other standard-setters, the
Board noted the following:
In previous releases on its proposed risk assessment standards,
the Board has stated that it has sought to eliminate unnecessary
differences with the risk assessment standards and those of other
standards-setters. However, because the Board's standards must be
consistent with the Board's statutory mandate, differences will
continue to exist between the Board's standards and the standards of
the IAASB and ASB, e.g., when the Board decides to retain an
existing requirement in PCAOB standards that is not included in
IAASB or ASB standards. Also, certain differences are often
necessary for the Board's standards to be consistent with relevant
provisions of the federal securities laws or other existing
standards or rules of the Board.\4\
---------------------------------------------------------------------------
\4\ See PCAOB Release No. 2010-004, August 5, 2010, pp. A10-91--
A10-92 (internal footnotes omitted).
The Board also noted that it ``continually endeavors to improve its
processes'' and explained other initiatives it uses in both gaining
input on its standard-setting activities (e.g., through its SAG and by
releasing multiple exposure documents) and providing additional
transparency of its standards-setting process (e.g., through posting
its standards-setting agenda and enhanced discussions in its releases
on the Board's conclusions). The Commission notes and encourages the
Board's efforts to consider standards issued by the IAASB and the ASB,
and appreciates the reasons why it is reasonable to expect that the
Board's standards may appropriately differ from such standards. The
Commission and its staff will continue to provide oversight of the
Board and its staff's ongoing endeavor to improve its processes.
Regarding the ``prescriptive'' nature of the standards, we
recognize that there should be an appropriate balance in auditing
standards between providing necessary minimum requirements and allowing
auditors to apply judgment in determining the nature and extent of
audit procedures given the particular circumstances of an individual
engagement. PCAOB standards recognize that the auditor uses judgment in
planning and performing audit procedures and evaluating the evidence
obtained from those procedures. We recognize, however, that overly
broad standards without an appropriate balance of necessary
requirements could lead to a level of discretion in the nature and
extent of audit procedures that may limit the effectiveness of audits.
The Commission believes the PCAOB's approach in the Risk Assessment
Standards is not unreasonable and encourages the PCAOB to monitor
implementation and evaluate the input received during the development
of future standards to continue to strive to achieve an optimal
balance.
Regarding a codification of the auditing standards, the Commission
notes that the Board has recently added this project to its strategic
plan and amended its performance measure on standard-setting activities
to reflect this new initiative.
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed PCAOB Rules on Auditing Standards Related to the Auditor's
Assessment of and Response to Risk and Related Amendments to PCAOB
Standards (File No. PCAOB-2010-01) are consistent with the requirements
of the Sarbanes-Oxley Act of 2002, as amended (the ``Act'') and the
securities laws and are necessary or appropriate in the public interest
or for the protection of investors.
It is therefore ordered, pursuant to Section 107 of the Act and
Section 19(b)(2) of the Securities Exchange Act of 1934, that the
proposed PCAOB Rules on Auditing Standards Related to the Auditor's
Assessment of and Response to Risk and Related Amendments to PCAOB
Standards (File No. PCAOB-2010-01) be and hereby are approved.
[[Page 82419]]
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-32885 Filed 12-29-10; 8:45 am]
BILLING CODE 8011-01-P
