In 2014, the International Accounting and Assurance Standards Board asked stakeholders to provide feedback on its proposed changes to the audit reporting model. In its comments on the proposed standard, the Canadian Public Accountability Board (CPAB) stated it was "disappointed that the IAASB has chosen not to pursue a requirement to disclose the extent of involvement of other auditors in the audit ... and such disclosure would provide greater transparency to users."
So why is CPAB concerned about this? What type of useful information does disclosing the involvement of other auditors convey? CPAB noted in its 2012 and 2013 inspection reports that it was concerned over the degree to which group auditors rely upon work performed by foreign auditors without the appropriate involvement of the group auditor in the work of the foreign auditor.
The American Public Company Accountability Oversight Board (PCAOB) has similar concerns as CPAB. In late 2013, it issued its own release proposing disclosure of both other auditors and specialists. Under these proposals, the auditor's report would include the name, location, and extent of participation (as a percentage of total audit hours) of certain other audit firms that participate in the audit. The auditor's report would also include the location and extent of participation of specialists not employed by the auditor who took part in the audit. Both CPAB and the PCAOB argue that disclosure of the involvement of other auditors would provide users with transparency around who is doing the audit. The current requirement of only the group auditor signing the audit report gives the impression that the group auditor solely performed the audit. The PCAOB argues that this disclosure would allow users to research publicly available information about the other auditors and specialists to understand where they are headquartered and potential issues around quality. However, the IAASB argues that, rather than being more transparent, such disclosure will only confuse users about the quality of the audit. After all, the current standards require the group auditor to have significant involvement in the planning and review of the work of other auditors as well as specialists.
APPLYING YOUR PROFESSIONAL JUDGMENT
1. Based upon the arguments above, whom do you agree with-the IAASB or CPAB (and the PCAOB)? Why?
2. What other benefits and costs do you see in making disclosures of other auditors that are consistent with the PCAOB's recommendations?