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STANDARD-SETTING UPDATEOFFICE OF THE CHIEF AUDITOR
JUNE 30, 2018

The Public Company Accounting Oversight Board ("PCAOB" or "Board") seeks toestablish and maintain high-quality auditing and related professional practice standards foraudits of issuers and brokers and dealers in support of the PCAOB's overall mission ofprotecting investors and furthering the public interest in the preparation of informative, accurate,and independent audit reports. The PCAOB's Office of the Chief Auditor—working with other
PCAOB offices and divisions—assists the Board in establishing and maintaining PCAOB
standards.
The PCAOB takes a priority-based approach to standards-related projects. The process
begins with a PCAOB interdivisional team that performs an annual environmental scan to
identify current or emerging audit issues and informs the Board regarding matters that
potentially warrant changes to PCAOB standards or additional staff guidance. Theinterdivisional team also continues to monitor current or emerging issues throughout the year,
including observations from oversight activities that may merit further consideration. The
evaluation of potential issues may result in a project being added to the PCAOB research
agenda.
For each project on the PCAOB research agenda, a PCAOB interdivisional researchteam is formed to perform research, outreach, and economic analysis to assess whether there
is a need for changes to PCAOB standards; consider alternative regulatory responses; and, if
standard setting is needed, evaluate potential standard-setting scope and approaches. If
standard setting is pursued, the project would be added to the standard-setting agenda. If
standard setting is not pursued, consideration will be given to whether or not any other action isneeded. In addition to the projects on the research agenda, the PCAOB also conducts
monitoring activities in other areas that could impact audits or PCAOB standards (e.g., financial
reporting fraud, auditor independence, and new accounting standards).
The Board solicits public comment on potential changes to the PCAOB standards before
adopting changes. Consideration of changes to PCAOB standards also involves conducting an
economic analysis and analyzing potential impacts of changes on audits of emerging growthcompanies.
The standard-setting update, which includes the standard-setting and research agendas,
was prepared by the staff of the Office of the Chief Auditor. Standard-setting and research
agendas, staff consultation papers, and staff audit practice alerts are not statements of theBoard, nor do they necessarily reflect the views of the Board, individual Board members, orother staff.

Standard–Setting Update
June 30, 2018
Page 2

Additionally, the PCAOB staff may prepare guidance regarding the application of existing
PCAOB standards. For example, PCAOB staff audit practice alerts highlight new, emerging, or
noteworthy circumstances that may affect how auditors conduct audits under, or otherwise
comply with, the existing requirements of the standards and rules of the PCAOB and relevant
laws.
The PCAOB's standard-setting related processes, including identifying current or
emerging audit issues, developing the research agenda, and working on standard-setting
projects, are informed by a range of activities. These activities include the PCAOB's oversightactivities, consultation with the Board's Standing Advisory Group ("SAG"), input from theBoard's Investor Advisory Group ("IAG"), discussion with the U.S. Securities and Exchange
Commission ("SEC") staff, work of other standard setters (for example, the International
Auditing and Assurance Standards Board ("IAASB"), Financial Accounting Standards Board("FASB"), and International Accounting Standards Board), and other relevant inputs anddevelopments.
Part I below covers the projects on the standard-setting agenda. Part II, beginning on
page 4, covers the projects on the research agenda.
The PCAOB will create a new webpage on the PCAOB’s website to communicate
updates on its standard-setting and research projects. The PCAOB is considering changes tothe frequency of updates and the information provided on projects to promote accessibility andtransparency, including, for example, by giving website users the ability to sign up to receive
regular notices when the page, or any individual project, is updated.

Part I

Standard–Setting Agenda
Project

Current Stage

Auditing Accounting Estimates, Including Developing a recommendation
Fair Value Measurements
consideration in Q4 2018

for

Board

The Auditor's Use of the Work of Specialists

for

Board

Supervision
AuditorsofGoing Concern

AuditsInvolving

Developing a recommendationconsideration in Q4 2018

Other Analyzing comments on supplemental request
for comment and determining next steps
Outreach, monitoring, and research

Public Company Accounting Oversight Board
1666 K Street NW, Washington, DC 20006

Standard–Setting Update
June 30, 2018
Page 3Standard–Setting Project Overviews
1. Auditing Accounting Estimates, Including Fair Value Measurements. On June 1, 2017,
the Board issued for public comment a proposed single auditing standard to replace theexisting standards for auditing accounting estimates and fair value measurements andproposed other related amendments to PCAOB auditing standards to strengthen andenhance the requirements for auditing accounting estimates, including fair value
measurements. The proposed single auditing standard also would include a special topics
appendix that addresses auditing the fair value of financial instruments, including the use of
information from pricing sources. Accounting estimates are becoming more prevalent andsignificant as financial reporting frameworks evolve and require greater use of estimates,
including those based on fair value measurements. Accounting estimates are some of theareas of greatest risk in the audit, requiring additional audit attention and appropriate
application of professional skepticism. Auditing accounting estimates has provenchallenging for auditors, as indicated by the results of PCAOB inspections. The proposalemphasizes that auditors need to apply professional skepticism and devote greater attention
to potential management bias when auditing accounting estimates. This proposal wasissued in conjunction with a companion proposal on the auditor's use of the work of
specialists. The comment period on both proposals ended on August 30, 2017. The staff
has analyzed the comments received and is developing a recommendation for Board
consideration in Q4 2018. For further information, see Rulemaking Docket No. 043.
2. The Auditor's Use of the Work of Specialists. On June 1, 2017, the Board issued for
public comment proposed amendments to PCAOB auditing standards to strengthen therequirements for the auditor's use of the work of specialists. Many companies employ orengage specialists, such as engineers or actuaries, to provide information used in the
preparation of financial statements. Auditors often use the work of company specialists asaudit evidence. Auditors also employ or engage their own specialists to assist in obtaining
and evaluating audit evidence. The proposal calls for auditors to devote more attention toareas of the audit where a specialist's work is used by the auditor. This proposal was issued
in conjunction with a companion proposal on auditing accounting estimates, including fairvalue measurements. The comment period on both proposals ended on August 30, 2017.
The staff has analyzed the comments received and is developing a recommendation for
Board consideration in Q4 2018. For further information, see Rulemaking Docket No. 044.
3. Supervision of Audits Involving Other Auditors. On April 12, 2016, the Board issued for
public comment amendments to improve the auditing standards that govern the supervisionof audits involving other auditors, and a new auditing standard for situations in which theauditor divides responsibility for the audit with another accounting firm. The roles of otheraccounting firms and individual accountants in audits (collectively, "other auditors") havetaken on greater significance with the increasingly global operations of companies. The lead
auditor often involves other auditors at various locations of the company, including in areasof the audit where there is a high risk of material misstatement in the financial statements.
After consideration of comments received on the proposal and discussions with the SAG, on
September 26, 2017, the Board issued a supplemental request for comment on revisions to
the proposed amendments and proposed standard that the Board is considering for
Public Company Accounting Oversight Board
1666 K Street NW, Washington, DC 20006

Standard–Setting Update
June 30, 2018
Page 4

adoption. The comment period on the supplemental request for comment ended on
November 15, 2017. The staff is analyzing comments and determining next steps. For
further information, see Rulemaking Docket No. 042.
4. Going Concern. The auditor's evaluation of a company's ability to continue as a going
concern is an important part of an audit under PCAOB standards and federal securities law.
The purpose of this project is to evaluate whether there is a need for regulatory action—e.g.,changes to the existing PCAOB standard on the auditor's going concern evaluation, staff
guidance, or other actions—in light of changes in the relevant accounting requirements 1 andconcerns from investors about the effectiveness of auditor going concern reporting. This
project is considering, among other things, input from the SAG and IAG, observations fromthe Board's oversight activities, and relevant research. The staff plans to continue its
research and outreach activities, including monitoring the effect on audits of the changes tothe relevant accounting standards. In the meantime, AS 2415, Consideration of an Entity's
Ability to Continue as a Going Concern, and Staff Audit Practice Alert No. 13 continue toprovide the applicable requirements and guidance, respectively, for audits under PCAOB
standards.

Part II

Research Agenda
Project

Current Stage

Quality Control Standards, Including Assignment Developing recommendations based on
and Documentation of Firm Supervisory research findings for next steps for Board
consideration
Responsibilities
Changes in the Use of Data and Technology in Exploring with the SAG task force current
the Conduct of Audits
practices in data analytics and artificial
intelligence; continuing outreach and otherresearch activities
Auditor's Role Regarding Other Information and Developing recommendations based on
Company Performance Measures, Including Non- research findings for Board consideration
GAAP Measures

1

On August 27, 2014, FASB issued Accounting Standards Update No. 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure ofUncertainties about an Entity’s Ability to Continue as a Going Concern. On September 22, 2014,
the PCAOB issued Staff Audit Practice Alert No. 13, Matters Related to the Auditor’sConsideration of a Company’s Ability to Continue as a Going Concern, to remind auditors tocontinue to follow existing PCAOB standards when considering a company's ability to continue
as a going concern.

Public Company Accounting Oversight Board
1666 K Street NW, Washington, DC 20006

Standard–Setting Update
June 30, 2018
Page 5

Project

Current Stage

Auditor's Consideration of Noncompliance with Developing recommendations based on
Laws and Regulations
research findings for Board consideration
Auditor Communications with Audit Committees Exploring whether guidance should be
Concerning Independence
issued or whether there is a need foramendments to Rule 3526
Research Project Overviews
1. Quality Control Standards, Including Assignment and Documentation of Firm
Supervisory Responsibilities. Deficiencies identified in PCAOB inspections suggest that
improvements may be needed in firms' systems of quality control. The staff is exploring
whether there is a need for changes to PCAOB quality control standards (e.g., making
improvements related to assignment and documentation of firm supervisory responsibilities)
that would prompt firms to improve their quality control systems and more proactively
identify and address emerging risks and deficiencies, thereby enhancing audit quality.
This project has considered, among other things, observations from the Board's oversightactivities, relevant research, input from the SAG and other outreach, and activities ofinternational audit regulators, as well as PCAOB initiatives related to the root cause analysis
and audit quality indicators. The staff is also monitoring developments related to the IAASB's
project on quality control. The project will also consider impacts of potential standard-setting
approaches on large and small domestic and international firms.
The staff has presented its research findings to the Board and is developing
recommendations for next steps for Board consideration.
2. Changes in the Use of Data and Technology in the Conduct of Audits. Significant
advances in technology have occurred in recent years, including increased use by issuers
and auditors of data analysis tools and emerging technologies. An increased use of thesetechnology-based tools could have a fundamental impact on the audit process, including thenature and amount of information available to auditors, significant judgments auditors makein critical areas of the audit, and staffing of audit engagements. The staff is exploring
whether there is a need for guidance, changes to PCAOB standards, or other regulatory
actions in light of increased use of new and emerging technology-based tools. This project isconsidering, among other things, the new technology-based tools being used in audits andthe impact on the audit of new technologies used by issuers, changes to firms'
methodologies, academic research, outreach, and the activities of others, including auditing
standard setters (e.g., the IAASB's Data Analytics Working Group).
As part of the project's outreach activities, this topic was discussed at the May 2017,
November 2017, and June 2018 SAG meetings.

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Standard–Setting Update
June 30, 2018
Page 6The Board also approved formation of a SAG task force 2 to assist the staff in obtaining
insights into the use of data analytics and certain emerging technologies. The task force
held its first meeting in May 2018. It identified data analytics and artificial intelligence as its
initial priorities, which will be discussed at its second meeting in fall 2018. The task force willconsider additional topics at future meetings.
3. Auditor's Role Regarding Other Information and Company Performance Measures,
Including Non-GAAP Measures. In recent years, there has been much press attention andregulatory scrutiny about the disclosure of company performance measures, including nonGAAP financial measures and operating measures. These measures are included in acompany's annual reports, registration statements, earnings releases, or in othercommunications, such as calls with analysts and information on the company's website.
Company performance measures that are included in an annual report outside the financial
statements, for example in management's discussion and analysis of financial condition andresults of operations, are considered "other information" and are subject to the requirementsof AS 2710, Other Information in Documents Containing Audited Financial Statements.
Under AS 2710, the auditor has a responsibility to "read and consider" other information in
documents containing audited financial statements. 3 However, under current PCAOB
standards, auditors do not have responsibilities to perform procedures related to information
presented in corporate earnings releases, investor presentations, or other communications,such as calls with analysts and information on the company's website.
In August 2013, the Board proposed a new standard that would enhance the auditor's
responsibility under AS 2710. 4 Given the continuing focus on company performancemeasures by investors and other stakeholders, the Board is reevaluating whether there is aneed to revise the standards in this area and, if so, how to change the auditor's existing
performance and reporting responsibilities related to other information accompanying
audited financial statements. The Board is also considering input it has received regarding
the significance to the capital markets of company performance measures that are often
reported in documents outside of the scope of AS 2710.
As part of its research activities, the staff has reviewed observations from PCAOB and SEC
oversight activities, initiatives of other regulators and standard setters, and the relevant
academic literature. The staff has also considered comments received on the other2

See the Data and Technology Task Force page on the PCAOB’s website under
the Standards: Standing Advisory Group page for a roster of task force members andobservers.
3

In addition, AS 4105, Reviews of Interim Financial Information, includes a similar
responsibility for the auditor with respect to other information that accompanies the interim
financial information.
4

For further information, see Rulemaking Docket No. 034.
Public Company Accounting Oversight Board
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Standard–Setting Update
June 30, 2018
Page 7

information standard proposed in 2013, input from meetings with the IAG and SAG in 2016
and 2017, and additional outreach to various stakeholders on current practice and thepotential need to improve the auditor’s responsibilities.
The staff is summarizing its research findings and is developing recommendations for next
steps for Board consideration.
4. Auditor's Consideration of Noncompliance with Laws and Regulations. AS 2405,
Illegal Acts by Clients, establishes requirements regarding the auditor's consideration of
possible illegal acts by a client in an audit of financial statements. AS 2405 has remainedlargely unchanged since its issuance in 1988. Since then, regulatory and investor attention
to company violations of laws and regulations has increased. The staff has been exploring
whether there is a need for improvements to AS 2405 to provide better direction to auditors
regarding their responsibilities with respect to illegal acts.
As part of its research activities, the staff has considered auditors' responsibilities related toillegal acts under existing auditing standards and the federal securities laws, as well as therequirements of other standard setters and regulators.
The staff has also considered current practice for auditors' detection, investigation, andreporting of illegal acts by reviewing, among other things, academic literature and otherstudies, reviewing firm methodologies, and analyzing PCAOB and SEC oversight activities.
The staff has also considered input from meetings with the IAG and SAG in 2017 andadditional outreach to various stakeholders.
The staff is summarizing its research findings and is developing recommendations for next
steps for Board consideration.
5. Auditor Communications with Audit Committees Concerning Independence. PCAOB
Rule 3526, Communication with Audit Committees Concerning Independence, provides,
among other things, that a registered public accounting firm must, at least annually withrespect to each of its audit clients: (1) describe in writing to the audit committee all
relationships between the audit firm and the audit client that, as of the date of thecommunication, may reasonably be thought to bear on independence; (2) discuss with theaudit committee the potential effects of those relationships on the independence of the audit
firm; and (3) affirm to the audit committee in writing that, as of the date of thecommunication, the firm is independent in compliance with PCAOB Rule 3520, Auditor
Independence. Inspection observations have identified situations that raise questions about
how firms are executing against the provisions of PCAOB Rule 3526 in circumstances inwhich there has been a relationship that caused a firm not to be independent under PCAOB
Rule 3520. The staff is exploring, through outreach and other research activities, whether
guidance should be issued or whether there is a need for amendments to Rule 3526.

Public Company Accounting Oversight Board
1666 K Street NW, Washington, DC 20006