39680 Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95159; File No. PCAOB– 

2022–01] 

Public Company Accounting Oversight 

Board; Notice of Filing of Proposed 

Rules on Planning and Supervision of 

Audits Involving Other Auditors and 

Dividing Responsibility for the Audit 

With Another Accounting Firm 

June 24, 2022. 

Pursuant to Section 107(b) of the 

Sarbanes-Oxley Act of 2002 (‘‘Act’’), 

notice is hereby given that on June 24, 

2022, the Public Company Accounting 

Oversight Board (the ‘‘Board’’ or the 

‘‘PCAOB’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’ or the ‘‘SEC’’) the 

proposed rules described in items I and 

II below, which items have been 

prepared by the Board. The Commission 

is publishing this notice to solicit 

comments on the proposed rules from 

interested persons. 

I. Board’s Statement of the Terms of 

Substance of the Proposed Rules 

On June 21, 2022, the Board adopted 

‘‘Planning and Supervision of Audits 

Involving Other Auditors and Dividing 

Responsibility for the Audit with 

Another Accounting Firm’’ and related 

amendments to its auditing standards, 

attestation standards, auditing 

interpretations, rules, and a form 

(collectively, the ‘‘proposed rules’’). The 

text of the proposed rules appears in 

Exhibit A to the SEC Filing Form 19b– 

4 and is available on the Board’s website 

at https://pcaobus.org/about/rulesrulemaking/rulemaking-dockets/docket042-proposed-amendments-relating-tothe-supervision-of-audits-involvingother-auditors-and-proposed-auditingstandard and at the Commission’s 

Public Reference Room. 

II. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

In its filing with the Commission, the 

Board included statements concerning 

the purpose of, and basis for, the 

proposed rules and discussed any 

comments it received on the proposed 

rules. The text of these statements may 

be examined at the places specified in 

Item IV below. The Board has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. In addition, 

the Board is requesting that the 

Commission approve the proposed 

rules, pursuant to Section 103(a)(3)(C) of 

the Act, for application to audits of 

emerging growth companies (‘‘EGCs’’), 

as that term is defined in Section 

3(a)(80) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’). The Board’s 

request is set forth in section D. 

A. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

(1) Purpose 

Summary 

The Board has adopted amendments 

to its auditing standards to strengthen 

requirements for planning and 

supervising audits involving accounting 

firms and individual accountants 

(collectively, ‘‘other auditors’’) outside 

the accounting firm that issues the 

auditor’s report (the ‘‘lead auditor’’). In 

these audits, the lead auditor issues the 

audit report on the company’s 

consolidated financial statements, but 

other auditors often perform important 

work on the audit. The roles of other 

auditors have increased as companies’ 

global operations have grown. In 

addition, the Board adopted a new 

auditing standard that will apply when 

the lead auditor divides responsibility 

for an audit with another accounting 

firm (‘‘referred-to auditor’’). 

Working with other auditors and 

referred-to auditors can differ from 

working with people in the same firm, 

creating challenges in coordination and 

communication. These challenges can 

lead to misunderstandings about the 

nature, timing, and extent of their work 

and can reduce audit quality. It is 

important for investor protection that 

the lead auditor adequately plan and 

supervise the work of other auditors so 

that the audit is performed in 

accordance with PCAOB standards and 

provides sufficient appropriate evidence 

to support the lead auditor’s opinion in 

the audit report. 

This rulemaking is intended to 

increase and improve the lead auditor’s 

involvement in and evaluation of the 

other auditors’ work. The Board 

believed that the heightened attention to 

other auditors’ work will improve 

communication among auditors and the 

lead auditor’s ability to prevent or 

detect deficiencies in that work, and 

thus enhance the quality of audits 

involving other auditors and promote 

investor protection. 

The amendments to the Board’s 

auditing standards are intended to 

improve PCAOB standards principally 

by (i) applying a risk-based supervisory 

approach to the lead auditor’s oversight 

of other auditors and (ii) requiring that 

the lead auditor perform certain 

procedures when planning and 

supervising an audit that involves other 

auditors. The amendments have taken 

into account recent practice 

developments in the lead auditor’s 

oversight of other auditors’ work, 

including the greater use of 

communication technology. In brief, the 

amendments: 

• Require that the engagement partner 

determine whether his or her firm’s 

participation in the audit is sufficient 

for the firm to carry out the 

responsibilities of a lead auditor and 

report as such. The amendments also 

provide considerations for the 

engagement partner to use in making 

this determination and require that the 

audit’s engagement quality reviewer 

review the determination. 

• Require that the lead auditor, when 

determining the engagement’s 

compliance with independence and 

ethics requirements, understand the 

other auditors’ knowledge of those 

requirements and experience in 

applying them. The amendments also 

require that the lead auditor obtain and 

review written affirmations regarding 

the other auditors’ policies and 

procedures related to those 

requirements and regarding compliance 

with the requirements, and a 

description of certain auditor-client 

relationships related to independence. 

In addition, the amendments require the 

sharing of information about changes in 

circumstances and the updating of 

affirmations and descriptions in light of 

those changes. 

• Require that the lead auditor 

understand the knowledge, skill, and 

ability of other auditors’ engagement 

team members who assist the lead 

auditor with planning and supervision, 

and obtain a written affirmation from 

other auditors that their engagement 

team members possess the knowledge, 

skill, and ability to perform assigned 

tasks. 

• Require that the lead auditor 

supervise other auditors under the 

Board’s standard on audit supervision 

and inform other auditors about the 

scope of their work, identified risks of 

material misstatement, and certain other 

key matters. The amendments also 

require that the lead auditor and other 

auditors communicate about the audit 

procedures to be performed, and any 

changes needed to the procedures. In 

addition, the amendments require the 

lead auditor to obtain and review 

written affirmations from other auditors 

about their performance of work in 

accordance with the lead auditor’s 

instructions, and to direct other auditors 

to provide certain documentation about 

their work. 

• Provide that, in multi-tiered audits, 

a first other auditor may assist the lead 

auditor in performing certain required 


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1Proposed Amendments Relating to the 

Supervision of Audits Involving Other Auditors and 

Proposed Auditing Standard—Dividing 

Responsibility for the Audit with Another 

Accounting Firm, PCAOB Release No. 2016–002 

(Apr. 12, 2016). 

2Supplemental Request for Comment: Proposed 

Amendments Relating to the Supervision of Audits 

Involving Other Auditors and Proposed Auditing 

Standard—Dividing Responsibility for the Audit 

with Another Accounting Firm, PCAOB Release No. 

2017–005 (Sept. 26, 2017). 

3Second Supplemental Request for Comment: 

Proposed Amendments Relating to the Supervision 

of Audits Involving Other Auditors and Proposed 

Auditing Standard—Dividing Responsibility for the 

Audit with Another Accounting Firm, PCAOB 

Release No. 2021–005 (Sept. 28, 2021). 

4See 2016 Proposal at Section II. 5See 2017 SRC at 6–7 (discussing comment 

letters received on the 2016 Proposal). 6 2017 SRC. 

7See 2021 SRC at 7 (discussing comment letters 

received on the 2017 SRC). 

procedures with respect to second other 

auditors. 

This rulemaking rescinds an interim 

standard but carries forward and 

strengthens some of its requirements in 

a new standard that applies to those 

infrequent situations where the lead 

auditor divides responsibility for a 

portion of the audit with another audit 

firm and therefore does not supervise 

the work performed by that firm. In 

these situations, the lead auditor refers 

in the audit report to the work of that 

auditor (i.e., a referred-to auditor). This 

new standard requires that in these 

situations the lead auditor determine 

that audit procedures were performed 

regarding the consolidation or 

combination of financial statements of 

the business units audited by the 

referred-to auditor into the company’s 

financial statements. The standard also 

requires that the lead auditor obtain the 

referred-to auditor’s written 

representation that it is independent 

and duly licensed to practice, and that 

the lead auditor disclose in the audit 

report the magnitude of the portion of 

the financial statements and, if 

applicable, internal controls audited by 

the referred-to auditor. 

The Board has adopted the 

amendments and new standard after 

three rounds of public comment. 

Commenters generally expressed 

support for the rulemaking’s objective of 

improving the quality of audits 

involving other auditors and referred-to 

auditors. They also suggested ways to 

revise or clarify the proposed 

amendments and standard. The Board 

took into account these comments, as 

well as observations of the Board and its 

staff through PCAOB oversight activities 

(including audit inspections and 

enforcement cases). 

The amendments and new standard 

apply to all audits conducted under 

PCAOB standards. Subject to approval 

by the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’), 

the amendments and new standard will 

take effect for audits for fiscal years 

ending on or after December 15, 2024. 

(b) Statutory Basis 

The statutory basis for the proposed 

rules is Title I of the Act. 

B. Board’s Statement on Burden on 

Competition 

Not applicable. The Board’s 

consideration of economic impacts of 

the proposed rules is discussed in 

section D below. 

C. Board’s Statement on Comments on 

the Proposed Rules Received From 

Members, Participants or Others 

The Board released the proposed rule 

amendment for public comment in 

PCAOB Release No. 2016–002 (Apr. 12, 

2016). The Board received 23 written 

comment letters on that release. The 

Board issued a supplemental request for 

public comment in PCAOB Release No. 

2017–005 (Sept. 26, 2017). The Board 

received 22 written comment letters on 

that release. The Board issued a second 

supplemental request for public 

comment in PCAOB Release No. 2021– 

005 (Sept. 28, 2021). The Board received 

19 written comment letters on that 

release. The Board has carefully 

considered all comments received. The 

Board’s response to the comments it 

received and the changes made to the 

proposed rules in response to the 

comments received are discussed below. 

Background 

This rulemaking addresses the 

responsibilities of the lead auditor (i.e., 

the audit firm that issues the auditor’s 

report) in planning and supervising an 

audit that involves the work of other 

auditors. In formulating the approach, 

the Board sought public comment 

several times. In April 2016, the Board 

issued a proposal (‘‘2016 Proposal’’) to 

amend our auditing standards and issue 

a new standard, to strengthen the 

requirements for lead auditors in audits 

that involve other auditors and referredto auditors.1 In September 2017, after 

considering public comments on the 

2016 Proposal, the Board issued a 

supplemental request for comment 

(‘‘2017 SRC’’) on certain targeted 

revisions to the proposed amendments.2

In September 2021, after considering the 

public comments on the prior releases, 

the Board issued a second supplemental 

request for comment (‘‘2021 SRC’’) to 

seek additional public comment on 

certain revisions to the amendments and 

other matters.3

Commenters on the 2016 Proposal, 

2017 SRC, and 2021 SRC (collectively, 

the ‘‘proposing releases’’) generally 

expressed support for the rulemaking’s 

objective of improving the quality of 

audits involving other auditors and 

referred-to auditors. They also suggested 

ways to revise or clarify the proposed 

amendments and standard. The Board 

considered all of the comments and 

adopted the amendments and standard 

(collectively ‘‘amendments’’ or ‘‘final 

amendments’’) for the reasons discussed 

below. 

Rulemaking History 

In the 2016 Proposal, the Board 

proposed to amend PCAOB auditing 

standards to strengthen existing 

requirements and impose a more 

uniform approach to the lead auditor’s 

supervision of other auditors.4 The 

proposed amendments were intended to 

increase the lead auditor’s involvement 

in, and evaluation of, the work of other 

auditors, enhance the ability of the lead 

auditor to prevent or detect deficiencies 

in the work of other auditors, and 

facilitate improvements in the quality of 

the work of other auditors. The 

proposed amendments also included a 

proposed new standard that would 

apply when the lead auditor divides 

responsibility for a portion of the audit 

with another accounting firm and refers 

to the referred-to auditor’s report in the 

lead auditor’s report. The Board 

received 23 comment letters on the 2016 

Proposal.5 Commenters generally 

expressed support for the rulemaking’s 

objective of improving the quality of 

audits involving other auditors and 

referred-to auditors. Some expressed 

concerns or requested clarification 

about certain proposed requirements. 

In response to the input from 

commenters, the Board issued a 

supplemental request for comment on 

the 2016 Proposal in September 2017.6

The 2017 SRC discussed significant 

comments received and presented 

revisions to the proposed amendments 

while leaving the overall proposed 

approach to the supervision of other 

auditors intact. The Board received 22 

comment letters on the 2017 SRC.7

Commenters generally expressed 

continued support for the project’s 

objectives, and a number of commenters 

also suggested changes to, or requested 

clarification or guidance on, certain 

proposed requirements. 

After consideration of the comments 

on the 2017 SRC and further analysis of 

issues raised by commenters and 


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39682 Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 

8The comment letters received on the 2016 

Proposal, 2017 SRC, and 2021 SRC are available in 

the docket for this rulemaking on the PCAOB’s 

website (https://pcaobus.org/Rulemaking/Pages/ 

Docket042Comments.aspx). 

9 In 1963, the American Institute of Certified 

Public Accountants (‘‘AICPA’’) issued a codification 

of auditing standards that included several 

paragraphs on using the work of other auditors or 

referred-to auditors. In 1971, the AICPA issued 

Statement on Auditing Procedure No. 45, Using the 

Work and Reports of Other Auditors, and in 1972 

it codified the standard in section 543 of the 

Statement on Auditing Standards No. 1 (AU sec. 

543). In 2003, the PCAOB adopted the auditing 

profession’s standards in existence at that time, 

including AU sec. 543. See Establishment of Interim 

Professional Auditing Standards, PCAOB Release 

No. 2003–006 (Apr. 18, 2003). In 2015, the PCAOB 

reorganized its auditing standards using a topical 

structure and a single, integrated numbering 

system. See Reorganization of PCAOB Auditing 

Standards and Related Amendments to PCAOB 

Standards and Rules, PCAOB Release No. 2015–002 

(Mar. 31, 2015). As part of that rulemaking, AU sec. 

543 was reorganized as AS 1205. The reorganization 

did not impose additional requirements on auditors 

or substantively change the requirements of that 

standard. 

10For example, the lead auditor may divide 

responsibility for a portion of the audit with 

another firm if it is impracticable for the lead 

auditor to review the other firm’s work. See AS 

1205.06. 

11Auditing Standards Related to the Auditor’s 

Assessment of and Response to Risk and Related 

Amendments to PCAOB Standards, PCAOB Release 

No. 2010–004 (Aug. 5, 2010). Among other things, 

these risk assessment standards established riskbased requirements for determining the necessary 

audit work in multi-location audit engagements. 

12See second note to AS 1205.01. 

developments in this area, the Board 

issued a second supplemental request 

for comment in September 2021. The 

proposed revisions in the 2021 SRC 

were designed to adjust certain 

requirements to better take into account 

the lead auditor’s role in the audit, 

address certain scenarios encountered 

in practice, revise certain proposed 

definitions to reflect recent amendments 

to the Board’s standards, and improve 

the readability of the amended 

standards. The Board received 19 

comment letters on the 2021 SRC. 

Commenters continued to generally 

express support for the project’s 

objectives, and also suggested some 

changes to, or requested clarification or 

guidance on, certain proposed 

requirements. The Board has considered 

the comments on the 2021 SRC, as well 

as on the previous proposing releases, in 

developing the final amendments.8 The 

Board has also considered the 

observations of the Board and its staff 

from PCAOB oversight activities. 

Overview of Existing Requirements 

This section discusses key provisions 

of existing PCAOB auditing standards 

that address lead auditor 

responsibilities involving the work of 

other auditors or referred-to auditors 

that participate in an audit. Depending 

on the circumstances of an audit 

involving other auditors, one of two 

standards applies, as described below. 

In 2003, the Board adopted the 

standard known today as AS 1205, Part 

of the Audit Performed by Other 

Independent Auditors (at that time, AU 

sec. 543), when it adopted the auditing 

profession’s standards then in 

existence.9 AS 1205 imposes 

requirements on a lead auditor (or 

‘‘principal auditor,’’ in the terminology 

of AS 1205) that uses the work and 

reports of other independent auditors 

that have audited the financial 

statements of one or more subsidiaries, 

divisions, branches, components, or 

investments included in the financial 

statements audited by the lead auditor. 

These requirements relate to situations 

in which the lead auditor uses the work 

and reports of other auditors or referredto auditors by (i) assuming 

responsibility for the other auditors’ 

work or (ii) dividing responsibility for 

the audit with referred-to auditors and 

referring to their work and reports in the 

lead auditor’s audit report.10 Those 

‘‘divided-responsibility’’ situations, as 

discussed below, are relatively 

uncommon. 

In 2010, the Board adopted AS 1201, 

Supervision of the Audit Engagement (at 

that time, Auditing Standard No. 10), 

when it adopted eight new auditing 

standards that set forth the auditor’s 

responsibilities for assessing and 

responding to risk in an audit.11 AS 

1201 governs the supervision of the 

audit engagement, including 

supervising the work of engagement 

team members outside the engagement 

partner’s firm. Under existing PCAOB 

standards, the lead auditor supervises 

the work of another auditor under AS 

1201 in situations not covered by AS 

1205.12

Figure 1 illustrates an example of a 

U.S.-based audit that involves other 

accounting firms, and the PCAOB 

auditing standards that apply to the 

audit. In the example, Accounting Firm 

1 is the lead auditor, and it involves 

Accounting Firm 2 by either (A) 

assuming responsibility for the work 

and reports of Accounting Firm 2 in 

accordance with AS 1205, or (B) 

supervising the work of Accounting 

Firm 2 in accordance with AS 1201. The 

lead auditor (C) divides responsibility 

for part of the audit with Accounting 

Firm 3 in accordance with AS 1205 and 

refers to Accounting Firm 3 in the lead 

auditor’s audit report on the 

consolidated financial statements. 


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Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39683 

13 In addition, in situations governed by AS 1205, 

the lead auditor is required by the Board’s standard 

on planning, AS 2101, Audit Planning, to perform 

procedures to determine the locations or business 

units at which audit procedures should be 

performed. See AS 2101.11–.13. This also applies 

to situations in which the auditor divides 

responsibility with another accounting firm. See AS 

2101.14. 

14See AS 1205.02. 

15AS 1205.10. 16AS 1205.10.c. 

The following discusses AS 1205 and 

AS 1201 in more detail: 

(A) Using the work and reports of 

other auditors under AS 1205. If an 

auditor uses, and assumes responsibility 

for, the work and reports of other 

auditors that audited the financial 

statements of one or more subsidiaries, 

divisions, branches, components, or 

investments included in the financial 

statements presented, AS 1205 includes 

the following requirements:13

• When significant parts of the audit 

are performed by other auditors (from 

the same network of firms as the lead 

auditor or outside the network), the 

auditor is required to decide whether its 

own participation in the audit is 

sufficient to enable it to serve as the 

lead auditor (or, in the language of AS 

1205, the ‘‘principal auditor’’) and to 

report as lead auditor on the company’s 

consolidated financial statements.14

• Whether or not the lead auditor 

decides to make reference to the audit 

of the other auditor, the lead auditor is 

required to make inquiries about the 

professional reputation and 

independence of the other auditor.15 In 

addition, the lead auditor is required to 

adopt appropriate measures to assure 

the coordination of its activities with 

those of the other auditor in order to 

achieve a proper review of the matters 

affecting the consolidating or combining 

of accounts in the financial statements. 

Those measures may include 

procedures to ascertain through 

communication with the other auditor: 

• That the other auditor is aware that 

the financial statements of the 

component which it is to audit are to be 

included in the financial statements on 

which the lead auditor will report, and 

that the other auditor’s report will be 

relied upon (and, where applicable, 

referred to) by the lead auditor; 

• That the other auditor is familiar 

with the accounting principles generally 

accepted in the United States and with 

the standards of the PCAOB, and will 

conduct its audit and issue its report in 

accordance with those standards; 

• That the other auditor has 

knowledge of the SEC’s financial 

reporting requirements; and 

• That a review will be made of 

matters affecting elimination of 

intercompany transactions and accounts 

and, if appropriate, the uniformity of 

accounting practices among the 

components included in the financial 

statements.16

• The lead auditor must obtain, 

review, and retain certain information 

from the other auditor before issuing the 

report, including an engagement 

completion document, a list of 

significant risks, the other auditor’s 

responses to those risks, the results of 

the other auditor’s related procedures, 

and significant deficiencies and material 


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Figure 1. Example of an Audit Involving Other Accounting Firms 

f'•(A)Usi~JAcco~~ting • 

Firm 2's work and 

f reports under AS 1205 

OR 

(B} Supervising 

Accounting Firm 2 

under AS 1201 

h 

r·•--·•-··-· 

' <(C}Accounting Firm 1 

'.

0

tjivides responsibility for 

· · ~,r _-- the audit with 

Accounting Firm 3 

under AS 1205 
39684 Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 

17AS 1205.12. 

18The word ‘‘should,’’ as used in the auditing and 

related professional practice standards, indicates 

responsibilities that are presumptively mandatory. 

See Paragraph (a)(2) of PCAOB Rule 3101, Certain 

Terms Used in Auditing and Related Professional 

Practice Standards. Rule 3101 also defines other 

terms, such as ‘‘must’’ and ‘‘may,’’ that describe the 

degree of responsibility that the standards impose 

on auditors. 

19AS 1205.12. 

20AS 1201.03. 

21AS 1201.04. 

22AS 1201.05. 

23AS 1201.06. 

24For auditors’ reports on non-issuer entities, 

where the principal accountant elects to place 

reliance on the work of the other accountant and 

makes reference to that effect in the auditor’s report, 

SEC rules require that the other accounting firm’s 

report be filed with the SEC. See Rule 2–05 of 

Regulation S–X, 17 CFR 210.2–05. 

25AS 1205.06–.09. 

26AS 1205.12. 

27AS 1205.07–.09. 

28 ISA 600, Special Considerations—Audits of 

Group Financial Statements (Including the Work of 

Component Auditors) (effective for audits of group 

financial statements for periods beginning on or 

after December 15, 2009); ISA 600 (Revised), 

Special Considerations—Audits of Group Financial 

Statements (Including the Work of Component 

Auditors) (effective for audits of group financial 

statements for periods beginning on or after 

December 15, 2023). See also AU–C Section 600, 

Special Considerations—Audits of Group Financial 

Statements (Including the Work of Component 

Auditors) (standard adopted by the AICPA’s 

Auditing Standards Board (‘‘ASB’’)). 

29Under ISA 600, group audits are audits of 

‘‘group financial statements’’ consisting of at least 

two ‘‘components.’’ Group audits generally are 

performed by a ‘‘group engagement team’’ and one 

or more ‘‘component auditors’’ and may involve a 

single firm or multiple firms. 

30See, e.g., Koninklijke Ahold N.V. (Royal 

Ahold), A. Michiel Meurs, Cees van der Hoeven, 

Johannes Gerhardus Andreae, and Ture Roland 

Fahlin, SEC Accounting and Auditing Enforcement 

Release (‘‘AAER’’) No. 2124 (Oct. 13, 2004); Lernout 

& Hauspie Speech Products, SEC AAER No. 1729 

(Mar. 4, 2003); In re Parmalat Finanziara, S.p.A, 

SEC AAER No. 2065 (July 28, 2004); see also 

Michael J. Jones, ed., Creative Accounting, Fraud 

and International Accounting Scandals (2011) 

(describing, in Part B, 58 high-profile accounting 

scandals across 12 countries, including the Royal 

Ahold and Parmalat cases). 

31See paragraph 7 of IAASB, Invitation to 

Comment, Enhancing Audit Quality in the Public 

Interest: A Focus on Professional Skepticism, 

Quality Control and Group Audits (Dec. 2015); see 

also IFIAR, 2017 Survey of Inspection Findings 

(Mar. 8, 2018), at 10 (showing group audits among 

the inspection themes with frequent findings in 

2014–2017); IAASB, Work Plan for 2015–2016: 

Enhancing Audit Quality and Preparing for the 

Future (Dec. 2014), at 7 (‘‘Concern [with ISA 600] 

has been expressed about: [t]he extent of the group 

auditor’s involvement in the work of the component 

auditor . . .; [c]ommunication between the group 

auditor and the component auditor; [a]pplication of 

the concept of component materiality; [i]dentifying 

a component in complex situations; and [w]ork 

effort of the component auditor.’’). 

weaknesses in internal control over 

financial reporting.17

• The lead auditor also should 18

consider performing one or more of the 

following procedures: visiting the other 

auditor, reviewing the audit programs of 

the other auditor (and, in some cases, 

issuing instructions to the other 

auditor), and reviewing additional audit 

documentation of significant findings or 

issues in the engagement completion 

document.19

(B) Including the other auditors in the 

engagement team and supervising their 

work under AS 1201. This standard 

governs the auditor’s supervision of an 

audit engagement, including the work of 

other auditors who are members of the 

same engagement team, wherever they 

are located. AS 1201, as it relates to the 

supervision of other auditors on the 

engagement team, includes the 

following requirements: 

• The engagement partner is 

responsible for the engagement and its 

performance.20 The engagement partner 

may seek assistance from appropriate 

engagement team members in fulfilling 

his or her responsibilities for the 

engagement and its performance.21

Engagement team members can be from 

the engagement partner’s firm or outside 

the firm. 

• The engagement partner and others 

who assist the engagement partner in 

supervising the work of other 

engagement team members are required 

to: 

• Inform the engagement team 

members of their responsibilities for the 

work they are to perform, including the 

objective of the procedures they are to 

perform, the nature, timing, and extent 

of those procedures, and matters that 

could affect those procedures; 

• Direct the engagement team 

members to inform the engagement 

partner or supervisors of significant 

accounting and auditing issues arising 

during the audit; and 

• Review the work of engagement 

team members to evaluate whether the 

work was performed and documented, 

the objectives of the procedures were 

achieved, and the results of the work 

support the conclusions reached.22

• The engagement partner and others 

who assist the engagement partner in 

supervising the audit should determine 

the extent of supervision necessary for 

engagement team members to perform 

their work as directed and form 

appropriate conclusions. Under this 

standard, requirements for supervision 

are risk-based and scalable, and the 

necessary extent of supervision varies 

depending on, for example, the nature 

of the assigned work, the risks of 

material misstatement associated with 

that work, and the knowledge, skill, and 

ability of each individual involved.23

(C) Dividing responsibility for the 

audit with another accounting firm. AS 

1205 also governs audits in which the 

lead auditor divides responsibility for 

the audit with another accounting firm 

that issues a separate auditor’s report on 

the financial statements of one or more 

subsidiaries, divisions, branches, 

components, or investments included in 

the company’s financial statements.24

The requirements of AS 1205 that apply 

under these circumstances are more 

limited than the requirements that apply 

to the lead auditor’s use of the work and 

reports of other auditors when the lead 

auditor assumes responsibility for the 

other auditor’s work (discussed in item 

A above).25 For example, AS 1205 does 

not require the lead auditor to obtain, 

review, and retain certain information 

from the accounting firm with which 

the lead auditor divides responsibility 

for the audit (which is required when 

the lead auditor assumes responsibility 

for another firm’s work under AS 

1205).26 If the lead auditor refers in its 

report to the work of another firm, the 

lead auditor’s report indicates the 

division of responsibility and the 

magnitude of the portion of the financial 

statements audited by the other firm.27

Existing Practice 

This section describes the state of 

practice—including the evolution of 

audit practices and related inspection 

findings—that the Board and its staff 

have observed in past years through 

PCAOB oversight activities (including 

through observations from audit 

inspections and enforcement cases). 

Evolution of Auditing Practice at 

Accounting Firms 

Auditors around the world, even 

when they perform audit procedures 

that are required to comply with PCAOB 

standards, may be influenced by 

international and home country 

auditing standards. With respect to the 

use of other auditors, the standards of 

the International Auditing and 

Assurance Standards Board 

(‘‘IAASB’’)—specifically, International 

Standard on Auditing (‘‘ISA’’) 600 28— 

establishes requirements for ‘‘group 

audits.’’ 29 ISA 600 was originally 

developed in the wake of several 

significant frauds that involved 

multinational groups of companies, 

audited by multiple accounting firms.30

In December 2021, the IAASB approved 

amendments to ISA 600 in a project that 

was informed by, among other things, 

persistent deficiencies in group audits 

reported by the International Forum of 

Independent Audit Regulators 

(‘‘IFIAR’’).31


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32See PCAOB, Spotlight: Data and Technology 

Research Project Update (May 2020), at 4–5 (noting 

that some firms have applied technology and 

developed tools to ‘‘improve communications 

between the auditor and the company or among 

members of the engagement team (including other 

auditors), track information received during the 

audit, automate the documentation of procedures 

performed, and facilitate the efficiency of 

supervisory review.’’). 

33See PCAOB, Spotlight: Staff Update and 

Preview of 2019 Inspection Observations (Oct. 8, 

2020). 

34See, e.g., 2016 Proposal at 16–17. 

35See In the Matter of Akiyo Yoshida, CPA, 

PCAOB Release No. 105–2014–024 (Dec. 17, 2014). 

Unless otherwise indicated, the enforcement cases 

discussed in this section were settled proceedings. 

36See In the Matter of Wander Rodrigues Teles, 

PCAOB Release No. 105–2017–007 (Mar. 20, 2017). 

37See In the Matter of Ricardo Agustı ́n Garcı ́a 

Chagoya ́n, Jose ́ Ignacio Valle Aparicio, and Rube ́n 

Eduardo Guerrero Cervera, PCAOB Release No. 

105–2018–021 (Oct. 30, 2018). 

38For findings in PCAOB enforcement cases, see, 

for example, In the Matter of Michael T. Studer, 

CPA, P.C. and Michael T. Studer, CPA, PCAOB 

Release No. 105–2012–007 (Sept. 7, 2012), and In 

the Matter of Bentleys Brisbane Partnership and 

Robert John Forbes, CA, PCAOB Release No. 105– 

2011–007 (Dec. 20, 2011). Some of the standards 

violated in the enforcement cases cited in this 

release were predecessor standards to current 

PCAOB standards. The descriptions of inspection 

findings in this release are based on certain 

accounting firm inspection reports (portions of 

which are available on the PCAOB’s website) and 

on the PCAOB’s experience with inspecting firms. 

39See BDO Canada LLP (f/k/a BDO Dunwoody 

LLP), SEC AAER No. 3926 (Mar. 13, 2018). 

40See KPMG Inc., SEC AAER No. 3927 (Mar. 13, 

2018). 

41See, e.g., In the Matter of Gregory & Associates, 

LLC, and Alan D. Gregory, CPA, PCAOB Release 

No. 105–2019–018 (Aug. 21, 2019). 

42See PCAOB Rule 2100, Registration 

Requirements for Public Accounting Firms 

(providing that any firm that plays a substantial role 

in the preparation or furnishing of an audit report 

with respect to any issuer, broker, or dealer must 

be registered with the Board); see also PCAOB Rule 

1001(p)(ii), Definitions of Terms Employed in Rules 

(defining the phrase ‘‘play a substantial role in the 

preparation or furnishing of an audit report’’). 

43See, e.g., BDO Canada LLP, SEC AAER No. 

3926; KPMG Inc., SEC AAER No. 3927. 

Meanwhile, the PCAOB has observed 

through its oversight activities that, after 

the PCAOB and IAASB adopted their 

own standards on risk assessment, some 

audit firms, particularly some of the 

largest firms that work extensively with 

other auditors, revised their policies, 

procedures, and guidance 

(‘‘methodologies’’) for using other 

auditors. The PCAOB has also observed 

differences among firms’ methodologies, 

for example, in their approaches to 

determining whether the firm’s 

participation in an audit is sufficient for 

the firm to serve as lead auditor. 

The PCAOB has also noted through its 

oversight activities that some audit 

firms have applied advances in 

technology to various aspects of the 

audit, including the supervision of 

engagement team members and other 

communications.32 The PCAOB has 

taken these practice developments into 

account in formulating the amendments. 

Observations From Audit Inspections 

and Enforcement Cases 

This section discusses observations 

based on PCAOB audit inspections and 

PCAOB and SEC enforcement cases. 

PCAOB staff has inspected the work of 

auditors who use other auditors, such as 

by reviewing the scope of work 

performed by the other auditor, the 

planning and instructions provided to 

the other auditor, and the degree of 

supervision (including review) of the 

other auditor. The PCAOB has also 

inspected the work of other auditors, 

such as by conducting inspections 

abroad and reviewing work performed 

by non-U.S. auditors at the request of a 

U.S.-based lead auditor. In some cases, 

PCAOB staff inspected the work 

performed by both the lead auditor and 

other auditors on the same audit. In 

many cases, but not always, the lead 

auditor was a U.S. firm while the other 

auditor was located in another 

jurisdiction. In addition, in 2019 the 

PCAOB established a ‘‘target team’’ of 

staff who performed inspection 

procedures across inspected firms. The 

team focused on U.S.-based multilocation audits and on issuer audits at 

annually inspected firms in which the 

U.S. firm was not the lead auditor.33

Other Auditors 

PCAOB inspections staff has observed 

significant audit deficiencies in the 

work performed by other auditors, 

including noncompliance with the lead 

auditor’s instructions and failure to 

communicate significant accounting and 

auditing issues to the lead auditor. 

Deficiencies have also been identified in 

other auditors’ compliance with PCAOB 

standards governing a variety of audit 

procedures.34

These failures in audit performance 

occurred in critical audit areas that are 

frequently selected for inspection, 

including revenue, accounts receivable, 

internal control over financial reporting, 

and accounting estimates including fair 

value measurements. For example, in 

several instances, other auditors failed 

to perform sufficient procedures in 

auditing the revenue of a company’s 

business unit, including with respect to 

evaluating the business unit’s revenue 

recognition policy, testing the 

occurrence of revenue, and testing the 

operating effectiveness of the business 

unit’s controls over revenue. In recent 

years, there have been some indications 

of decreasing inspection-observed 

deficiencies, as discussed below. 

The Board in its enforcement cases 

has made similar findings about failures 

in audit performance. In one case, the 

Board found that an other auditor failed 

to perform audit procedures and to 

exercise supervisory responsibilities in 

accordance with PCAOB standards.35 In 

another case, an other auditor failed to 

exercise due professional care and failed 

to obtain sufficient audit evidence for 

the audit work on accounts receivable.36

In a more recent case, other auditors 

failed to exercise due professional care, 

respond adequately to a known 

significant risk, and obtain sufficient 

appropriate audit evidence, and they 

misrepresented their work in 

communications with the lead 

auditor.37

Lead Auditor 

Over the years, there have been 

numerous observations from inspections 

and from enforcement cases where the 

lead auditor failed, under existing 

PCAOB standards, to appropriately 

determine the sufficiency of its 

participation in an audit to warrant 

serving as lead auditor. These failures 

occurred at large and small firms, 

domestic and international. Among the 

most egregious findings, lead auditors 

failed to perform an audit or 

participated very little in the audit, and 

instead issued an audit report on the 

basis of procedures performed by other 

auditors.38 In these audits, the auditor 

failed to appropriately determine that it 

could serve as the lead auditor when all 

or a substantial portion of the financial 

statements were audited by another 

auditor. In two SEC enforcement cases, 

one firm failed to perform any 

analysis,39 and another firm failed to 

perform an adequate analysis,40 under 

AS 1205 regarding the sufficiency of its 

participation to serve as lead auditor. 

There also have been findings in 

which the lead auditor failed to assess, 

or adequately assess, the qualifications 

of other auditors’ personnel who 

participated in the audit. For example, 

PCAOB oversight activities have 

revealed situations in which the other 

auditors’ personnel lacked the necessary 

industry experience or knowledge of 

PCAOB standards and rules (including 

independence requirements), SEC rules, 

and the applicable financial reporting 

framework to perform the work 

requested by the lead auditor.41 Other 

examples identified through PCAOB 

and SEC oversight activities include 

audits in which: (i) the lead auditor 

failed to ascertain whether the other 

auditors, each of whom played a 

substantial role in the audit,42 were 

registered with the PCAOB; 43 (ii) the 


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44See In the Matter of Ron Freund, CPA, PCAOB 

File No. 105–2009–007 (Jan. 26, 2015), at 1 (Board 

order summarily affirming hearing officer’s finding 

of violation and imposition of sanction) (finding a 

violation of AU 543.12b, which was reorganized by 

the PCAOB in March 2015 as AS 1205.12b, and 

which required that ‘‘the principal auditor must 

obtain, and review and retain, . . . [a] list of 

significant fraud risk factors, the auditor’s response, 

and the results of the auditor’s related procedures 

. . . .’’). 

45See BDO Canada LLP, SEC AAER No. 3926. 

46See, e.g., Anderson Bradshaw PLLC, Russell 

Anderson, CPA, Sandra Chen, CPA, and William 

Denney, CPA, SEC AAER No. 3856 (Jan. 26, 2017); 

Sherb & Co., LLP, Steven J. Sherb, CPA, Christopher 

A. Valleau, CPA, Mark Mycio, CPA, and Steven N. 

Epstein, CPA, SEC AAER No. 3512 (Nov. 6, 2013). 

47See, e.g., In the Matter of Acquavella, Chiarelli, 

Shuster, Berkower & Co., LLP, PCAOB Release No. 

105–2013–010 (Nov. 21, 2013); In the Matter of 

David T. Svoboda, CPA, PCAOB Release No. 105– 

2013–011 (Nov. 21, 2013). 

48See In the Matter of Morgan & Company LLP, 

PCAOB Release No. 105–2021–002 (Mar. 30, 2021). 

49According to PCAOB staff analysis of Form AP 

filings with the PCAOB, lead auditors currently 

divide responsibility with another auditor in about 

40 issuer audits per year. Form AP filings in 2021, 

2020, 2019, and 2018 disclosed 36, 41, 37, and 42 

divided-responsibility audits, respectively. 

50For data regarding deficiencies in audits that 

involve other auditors, see discussion below. 51See PCAOB, Staff Inspection Brief: Information 

about 2017 Inspections, Vol. 2017/3 (Aug. 2017), at 

7. The observed decrease is in comparison to the 

rate of deficiencies in certain inspected work in 

2011, 2012, and 2013, when inspections staff, in 

each year respectively, identified significant audit 

deficiencies in about 32, 38, and 42 percent of the 

inspected work performed for lead auditors by nonU.S. members of the six largest global networks. See 

Audit Committee Dialogue, PCAOB Release No. 

2015–003 (May 7, 2015), at 9 (graph entitled 

‘‘Deficiencies in Non-U.S. Referred Work’’). Because 

issuer audit engagements and aspects of those 

engagements are selected for inspection based on a 

number of risk-related and other factors, the 

deficiencies included in inspections reports are not 

necessarily representative of the inspected firms’ 

issuer audit engagement practice. 

52See PCAOB, Spotlight: Staff Update and 

Preview of 2019 Inspection Observations (Oct. 8, 

2020), at 5–6. 

lead auditor failed to obtain, review, 

and retain the results of the other 

auditor’s procedures relating to risks; 44

(iii) the lead auditor failed to instruct 

the other auditor to perform an audit in 

accordance with PCAOB standards; 45

(iv) the lead auditor failed to supervise 

the other auditors or provide specific 

instructions to them, including detailed 

audit plans, appropriate modifications 

to audit plans based on identified risks, 

the audit objectives to be accomplished, 

or the need to maintain proper 

documentation; 46 (v) the lead auditor 

failed to adequately supervise the work 

of foreign audit staff in circumstances in 

which the engagement partner did not 

speak, read, or write the language used 

by the foreign staff; 47 and (vi) the lead 

auditor failed to adequately analyze 

whether it could serve as the principal 

auditor, relied on the work of an other 

auditor that was not registered with the 

PCAOB, and failed to determine 

whether the other auditor’s work 

complied with PCAOB auditing 

standards.48 In recent years, there have 

been indications of increased 

involvement by some firms in the 

supervision of other auditors, as 

discussed below. 

Divided-Responsibility Audits 

As noted above, audits in which the 

lead auditor divides responsibility with 

one or more other accounting firms are 

relatively uncommon.49 For example, 

division of responsibility between 

auditors might occur for an equity 

method investment or a late-year 

acquisition of a company audited by 

another auditor. 

Evolution of Inspection Findings 

As noted above, some firms, 

particularly larger firms affiliated with 

global networks, have increased their 

supervision of other auditors in light of 

other standards. In recent years, some 

larger U.S. firms have made further 

changes to their audit methodologies, 

perhaps in response to deficiencies 

identified by PCAOB inspections, 

enforcement cases by regulators, and 

ongoing rulemaking developments. 

Specifically, some firms have 

encouraged a greater level of 

supervision by the lead auditor, such as 

frequent comprehensive 

communications with other auditors 

and review of other auditors’ work 

papers in the areas of significant risk. 

There have been some indications 

from PCAOB inspections that these 

firms’ revisions to methodologies may 

have contributed to a decline in 

inspection-observed audit deficiencies 

at the firms’ foreign affiliates with 

respect to work performed at the lead 

auditor’s request.50 In 2014, for 

example, PCAOB inspections staff 

observed a decrease in the number of 

significant audit deficiencies in work 

performed by other auditors.51 Since 

2014, the rate of deficiencies has 

fluctuated but remained below the 2013 

level. Thus, the changes to the 

methodologies of some firms appear to 

have contributed to some improvements 

in the quality of audits. 

In 2019, some of the Board’s 

inspections focused on certain topics in 

audits involving other auditors, 

including planning and risk assessment, 

determining the appropriateness of 

serving as lead auditor, and 

communications between the lead 

auditor and other auditors. The 

inspectors observed improved audit 

quality when the lead auditor and other 

auditors communicated regularly and 

consistently. They also observed areas 

for improvement, including the 

documentation of required procedures, 

reporting of certain audit participants, 

and compliance with independence 

requirements.52

Reasons To Improve Auditing Standards 

The increasing globalization of 

business, especially among large public 

companies, has led to expanded use of 

other auditors and increasingly 

significant roles for other auditors 

within the audit. When other auditors 

participate in an audit, it is important 

for investor protection that the 

engagement partner and, in turn, lead 

auditor assure that the audit is 

performed in accordance with PCAOB 

standards and that sufficient 

appropriate evidence is obtained 

through the combined work of the lead 

auditor and other auditors to support 

the lead auditor’s opinion in the audit 

report on the company’s consolidated 

financial statements. Among other 

things, this means that the lead auditor 

should be appropriately involved in the 

audit so that the work of all audit 

participants is properly planned and 

supervised, the results of the work are 

properly evaluated, and the lead auditor 

is in a position to conclude that the 

financial statements are presented fairly 

in all material respects. Lack of 

adequate lead auditor planning or 

supervision can result in deficient 

audits. 

As noted above, some firms have 

made changes to their audit 

methodologies regarding the use of 

other auditors. However, other firms 

that have not made significant 

improvements to their methodologies 

concerning the planning and 

supervision of audits involving other 

auditors may have greater risk of lower 

quality audits when they use other 

auditors. 

Additionally, observations from 

PCAOB oversight activities indicate that 

further improvements are needed. 

PCAOB staff continues to identify 

deficiencies in the work of other 

auditors in critical audit areas, 

deficiencies that lead auditors had not 

identified or sufficiently addressed. In 

some cases, these deficiencies occurred 

even when lead auditors did not violate 

existing requirements related to the use 

of other auditors, for example, if the 

lead auditor performed the procedures 

described in AS 1205 but did not 

identify these deficiencies. Such 

findings indicate that investor 

protection could be improved by, among 


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53The amendments apply to audits of issuers, as 

defined in Section 2(a)(7) of Sarbanes-Oxley, 15 

U.S.C. 7201(7), and also to audits of brokers and 

dealers, as defined in Sections 110(3) and (4) of 

Sarbanes-Oxley, 15 U.S.C. 7220(3)–(4). 54The amendments to AS 2101 and AS 1201 

appear in the main body of each standard and in 

Appendix A of AS 2101. As originally proposed, 

most of the amendments to these standards would 

have appeared in a new Appendix B of each 

standard. As adopted, the provisions that would 

have appeared in Appendix B are instead integrated 

in the main body of the standards. See 2021 SRC 

at 9. 

55Under the amended standard, in an integrated 

audit of financial statements and internal control 

over financial reporting (‘‘ICFR’’), the lead auditor’s 

participation in the audit of ICFR must also be 

sufficient to provide a basis for it to serve as the 

lead auditor of ICFR. (AS 2101.06C) 

other things, increased involvement in, 

and evaluation of, the work of other 

auditors by the lead auditor. 

Areas for Improvement 

To enhance audit practice among all 

firms using other auditors, the Board 

identified the following areas for 

improvement in the current standards: 

• Applying a risk-based supervisory 

approach. Applying a risk-based 

supervisory approach to the lead 

auditor’s oversight of other auditors’ 

work should result in more appropriate 

involvement by the lead auditor in 

audits involving other auditors. Unlike 

the Board’s standards for determining 

the scope of multi-location audit 

engagements and general supervision of 

the audit, which require more audit 

attention to areas of greater risk, the 

existing standard for using the work of 

other auditors does not explicitly 

require the lead auditor to tailor its 

planning and oversight of other auditors 

for the associated risks. Applying a riskbased supervisory approach will direct 

the lead auditor’s attention to the areas 

of greatest risk. 

• Providing additional specificity. 

Providing additional specificity for the 

lead auditor’s application of the 

principles-based supervisory 

requirements of PCAOB standards to the 

supervision of other auditors should 

help address the unique aspects of 

supervising other auditors. Additional 

specificity should also help the lead 

auditor assure that its participation in 

the audit is sufficient for it to carry out 

its responsibilities and issue an audit 

report based on sufficient appropriate 

evidence. 

• Taking into account recent changes 

in auditing practice. Revising PCAOB 

auditing standards to take into account 

recent changes that some firms have 

implemented to make their auditing 

practices more rigorous for audits that 

involve other auditors should make 

those improved practices more uniform 

across all accounting firms and enable 

the PCAOB to enforce more rigorous 

provisions across all firms. 

Because of the lead auditor’s central 

role in an audit involving multiple 

firms, the amendments adopted by the 

Board seek to strengthen the existing 

requirements and impose a more 

uniform approach to the lead auditor’s 

oversight of other auditors’ work. These 

improvements are intended to increase 

the lead auditor’s involvement in and 

evaluation of the work of other auditors 

generally, improve communication 

among the lead auditor and other 

auditors, enhance the ability of the lead 

auditor to prevent or detect deficiencies 

in the work of other auditors, and thus 

facilitate improvements in the quality of 

audits involving other auditors and 

promote investor protection. 

Comments on the Reasons for Standard 

Setting 

A number of commenters on the 

proposing releases broadly expressed 

support for enhancing PCAOB standards 

for using the work of other auditors and 

referred-to auditors, or stated that the 

proposed rulemaking would lead to 

improvements in audit quality. Some of 

the same commenters and others 

supported the Board’s objective of 

establishing requirements for overseeing 

other auditors’ work that are risk-based 

and more closely aligned with the 

Board’s risk assessment standards than 

the existing standards are. Some 

commenters supported updating 

PCAOB standards in light of, among 

other things, changes in the business 

environment, company structure, 

accounting firm and network structure, 

regulation, and financial reporting, and 

the increased prevalence of audits 

involving other auditors. Some other 

commenters supported providing a 

more uniform approach to the lead 

auditor’s supervision of other auditors. 

However, in the view of one commenter, 

some of the root causes of poor audit 

performance are not obvious, they have 

specific effects that are hard to isolate, 

and not all can be remedied by auditors 

and the PCAOB. 

Although commenters generally 

supported applying a risk-based 

approach to the lead auditor’s oversight 

of other auditors’ work, some 

commenters on the proposing releases 

expressed concerns about certain 

aspects of the amendments and their 

economic impact. Some recommended 

further improvements to the proposed 

amendments. In the view of some 

commenters, the amendments should 

include additional direction in certain 

areas, be more scalable and better 

aligned with the risk-based approach, 

and provide more latitude for the lead 

auditor to exercise professional 

judgment, e.g., in determining the 

nature, timing, and extent of 

supervisory activities. The Board’s 

consideration of the comments received 

is discussed further in this document. 

In adopting the amendments, the 

Board took into account the comments 

received on the proposing releases. 

Based on information available to the 

Board—including the current regulatory 

baseline, observations from the Board’s 

oversight activities, academic literature, 

and comments—the Board believes that 

investors will benefit from strengthened 

and clarified auditing standards in this 

area. While the Board does not expect 

that the revisions to the standards will 

(or ever could) entirely eliminate audit 

deficiencies in this area, the revisions 

will clarify the auditor’s 

responsibilities, align the applicable 

requirements with the PCAOB’s riskbased supervisory standards, and 

improve the quality of audits. 

Overview of Final Rules 

The amendments the Board adopted 

are intended to strengthen the existing 

requirements and impose a more 

uniform approach to the lead auditor’s 

supervision of other auditors.53 As 

discussed in more detail in this 

document, they are designed to increase 

the lead auditor’s involvement in, and 

evaluation of, the work of other 

auditors, enhance the lead auditor’s 

ability to prevent or detect deficiencies 

in the work of other auditors, and 

facilitate improvements in the quality of 

the work of other auditors. In addition, 

the Board adopted a new auditing 

standard that will apply when the lead 

auditor divides responsibility for an 

audit with another accounting firm. The 

key aspects of the amendments and new 

standard include: 

• Planning the audit. AS 2101, Audit 

Planning, as amended 54 will provide 

that: 

• In audits involving other auditors or 

referred-to auditors, the engagement 

partner should determine whether the 

participation of his or her firm is 

sufficient for the firm to carry out the 

responsibilities of a lead auditor and to 

report as such on the company’s 

financial statements.55 The amendments 

also describe considerations for making 

the sufficiency determination. (AS 

2101.06A) 

• In audits involving referred-to 

auditors, the Board has established that 

participation of the engagement 

partner’s firm is ordinarily not sufficient 

for it to serve as lead auditor if more 

than 50 percent of the assets or revenues 

are audited by referred-to auditors. (AS 

2101.06A) 


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56The terms ‘‘obtain,’’ ‘‘retain,’’ ‘‘written,’’ or ‘‘in 

writing’’ do not mandate that documents related to 

the audit be paper-based. See paragraph .04 of AS 

1215, Audit Documentation (audit documentation 

may be in the form of paper, electronic files, or 

other media). 

57See PCAOB Rule 1001(p)(ii) (defining the 

phrase ‘‘play a substantial role in the preparation 

or furnishing of an audit report’’), including 

conforming amendments for the term ‘‘lead 

auditor’’ as revised in this document. 

58The work of engaged assistants from outside 

the firm (e.g., leased staff, secondees, staff from a 

shared service center) will be governed by the same 

standards that apply to the work of assistants inside 

the firm (e.g., firm partners, shareholders, 

employees), including the supervision provisions in 

AS 1201.05–.06. See, e.g., Staff Audit Practice Alert 

No. 6, at 7–11 (July 12, 2010) (discussing engaging 

assistants from outside the firm). 

59Under PCAOB standards, the lead auditor’s 

necessary extent of review of the other auditors’ 

documentation depends on the necessary extent of 

supervision by the lead auditor (see AS 1201.06). 

The documentation to be reviewed by the lead 

auditor should include, at a minimum, the 

documentation described in AS 1215.19. 

60For a more detailed discussion of multi-tiered 

audits, see discussion below. 

• Another amended PCAOB standard, 

AS 1220, Engagement Quality Review, 

will expressly require that the 

engagement quality reviewer for the 

audit review the engagement partner’s 

determination about the sufficiency of 

his or her firm’s participation in the 

audit to serve as lead auditor. (AS 

1220.10a) 

• In audits that involve work 

performed by other auditors regarding 

locations or business units, the lead 

auditor’s involvement (through 

planning and performing audit 

procedures and supervising other 

auditors) should be commensurate with 

the risks of material misstatement 

associated with those locations or 

business units. (AS 2101.06B) 

• When determining the 

engagement’s compliance with 

independence and ethics requirements 

in audits involving other auditors, the 

lead auditor should: 

• Understand the other auditor’s 

knowledge of SEC independence 

requirements and PCAOB independence 

and ethics requirements 

(‘‘independence and ethics 

requirements’’), and experience in 

applying the requirements. (AS 

2101.06Da) 

• Obtain and review written 

affirmations 56 regarding (1) the other 

auditor’s policies and procedures 

regarding independence and ethics 

requirements and, if there are none, a 

description of how it determines its 

compliance; (2) the other auditor’s 

compliance with independence and 

ethics requirements, which also 

describe the nature of any instances of 

non-compliance; and (3) a description of 

all relationships between the other 

auditor and the audit client or persons 

in financial reporting oversight roles 

that may reasonably be thought to bear 

on independence. (AS 2101.06Db) 

• Inform the other auditor of changes 

that affect determining compliance with 

independence and ethics requirements 

and are relevant to the other auditor’s 

affirmations and descriptions. (AS 

2101.06Dc(1)) 

• Request that the other auditor 

update its affirmations and descriptions 

to reflect any changes in circumstances. 

(AS 2101.06Dc(2)) 

• If the other auditor would play a 

substantial role in the audit,57 the lead 

auditor may use the other auditor only 

if the other auditor is registered with the 

PCAOB. (AS 2101.06G) 

• With respect to the other auditor’s 

knowledge, skill, and ability, the lead 

auditor should: 

• Understand the knowledge, skill, 

and ability of the other auditor’s 

engagement team members who assist 

the lead auditor with planning and 

supervision. (AS 2101.06Ha) 

• Obtain a written affirmation from 

the other auditor that its engagement 

team members possess the knowledge, 

skill, and ability to perform the assigned 

tasks. (AS 2101.06Hb) 

• Determine that it can communicate 

with other auditors and gain access to 

their audit documentation. (AS 

2101.06Hc) 

• In multi-tiered audits, a first other 

auditor may assist the lead auditor in 

performing procedures with respect to 

second other auditors concerning 

independence and ethics requirements; 

the knowledge, skill, and ability of the 

second other auditors; and 

communications with second other 

auditors. (AS 2101.06E, .06I) 

• Supervising the audit. AS 1201, 

Supervision of the Audit Engagement, as 

amended will require that the lead 

auditor: 

• Supervise other auditors under the 

Board’s standard on supervision of the 

audit engagement (AS 1201) when the 

lead auditor assumes responsibility for 

the other auditor’s work (i.e., does not 

divide responsibility for the audit with 

an other auditor).58

• Inform other auditors of the scope 

of their work and the following items 

with respect to the work requested to be 

performed: identified risks of material 

misstatement associated with the 

location or business unit, tolerable 

misstatement, and the amount (if 

determined) below which misstatements 

are clearly trivial and do not need to be 

accumulated. (AS 1201.08) 

• Obtain and review the other 

auditor’s written description of 

procedures to be performed and discuss 

with, and communicate in writing to, 

the other auditor any needed changes to 

the planned procedures. (AS 1201.09– 

.10) 

• Obtain and review a written 

affirmation from the other auditor as to 

whether the other auditor has performed 

work in accordance with the lead 

auditor’s instructions, and, if the other 

auditor has not performed such work, a 

description of the nature of, and 

explanation of the reasons for, the 

instances where the work was not 

performed in accordance with the 

instructions, including (if applicable) a 

description of the alternative work 

performed. (AS 1201.11) 

• Direct other auditors to provide 

specified documentation concerning 

work performed.59 (AS 1201.12) 

• Determine whether the other 

auditor performed the work as 

instructed and whether additional audit 

evidence needs to be obtained. (AS 

1201.13) 

• Evaluate, in a multi-tiered audit 

where the lead auditor seeks assistance 

from a first other auditor to perform any 

of the above responsibilities with 

respect to second other auditors,60 the 

first other auditor’s supervision of 

second other auditors. (AS 1201.14) 

• Dividing responsibility for the audit. 

When the lead auditor divides 

responsibility for the audit with another 

accounting firm, new auditing standard 

AS 1206, Dividing Responsibility for the 

Audit with Another Accounting Firm, 

will provide that: 

• The lead auditor should determine 

that audit procedures are performed to 

test and evaluate the consolidation or 

combination of the financial statements 

of the business units audited by the 

referred-to auditor into the company’s 

financial statements. (AS 1206.03) 

• The lead auditor should 

communicate in writing to the referredto auditor the plan to divide 

responsibility for the audit. (AS 

1206.04) 

• The lead auditor should obtain 

written representation from the referredto auditor that it is independent under 

PCAOB and SEC requirements and duly 

licensed to practice. (AS 1206.05) 

• The lead auditor may divide 

responsibility for the audit with a 

referred-to auditor only if: 

• The referred-to auditor represents it 

performed its audit and issued its report 

in accordance with PCAOB standards; 

• The lead auditor determines that 

the referred-to auditor is familiar with 

the relevant financial reporting 

requirements and PCAOB standards; 


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61For situations involving auditors of the 

financial statements of the company’s investees, see 

discussion below. 

• The referred-to auditor is registered 

with the PCAOB if it played a 

substantial role in the audit or its report 

is with respect to a business unit that is 

itself an issuer, broker, or dealer; 

• In case of the conversion of 

business unit financial statements from 

another financial reporting framework 

to the financial reporting framework of 

the company, the lead auditor or the 

referred-to auditor audits the conversion 

adjustments, and the lead auditor 

indicates in its report which auditor was 

responsible for that. (AS 1206.06) 

• In situations where the lead auditor 

is unable to divide responsibility, the 

lead auditor should: plan and perform 

procedures necessary to issue an 

auditor’s report that expresses an 

opinion; qualify or disclaim an opinion; 

or withdraw from the engagement. (AS 

1206.07) 

• The lead auditor’s audit report must 

indicate clearly the division of 

responsibility, identify the referred-to 

auditor by name and refer to its report, 

and disclose the magnitude of the 

portion of the financial statements (or 

internal controls over financial 

reporting) audited by the referred-to 

auditor. (AS 1206.08) 

• If the referred-to auditor’s report is 

not a standard (i.e., unqualified) report, 

the lead auditor should make reference 

to the departure, unless the matter is 

clearly trivial to the financial 

statements. (AS 1206.09) 

• Additional amendments. The 

amendments the Board adopted also: 

• Rescind AS 1205, Part of the Audit 

Performed by Other Independent 

Auditors. 

• This change, in effect, requires lead 

auditors to supervise (directly or 

through other auditors) work performed 

by other auditors under AS 1201 in all 

cases, unless the lead auditor divides 

responsibility for the audit with another 

(referred-to) auditor, in which case AS 

1206 applies. 

• Revise AS 1015, Due Professional 

Care in the Performance of Work, to 

emphasize that other auditors are 

responsible for performing their work 

with due professional care. 

• Revise AS 1215 to expressly state 

that, in an audit involving other 

auditors, an other auditor must retain 

documentation of the work that it 

performs, and that its documentation is 

subject to the requirements related to 

subsequent modification. 

• Amend Appendix B, Audit 

Evidence Regarding Valuation of 

Investments Based on Investee Financial 

Results, of AS 1105, Audit Evidence, to 

distinguish it from requirements 

involving other auditors or referred-to 

auditors, by using a more descriptive 

term, ‘‘investee auditor’’ (including in 

situations involving equity method 

investees), and making certain other 

clarifying edits. 

• Include definitions of key terms 

‘‘engagement team,’’ ‘‘lead auditor,’’ 

‘‘other auditor,’’ and ‘‘referred-to 

auditor’’ in AS 2101. 

• Revise other PCAOB standards and 

rules to conform to these amendments. 

Additional Discussion of the 

Amendments and New Standard 

Introduction 

The changes to PCAOB standards the 

Board adopted were intended to 

improve the quality of audits that 

involve one or more public accounting 

firms, and accountants at those firms, 

that are outside the accounting firm 

issuing the auditor’s report. This section 

discusses in more detail amendments to 

auditing standards and a new auditing 

standard adopted by the Board relating 

to the use of other auditors and dividing 

responsibility for the audit with another 

accounting firm (collectively, 

‘‘amendments’’ or ‘‘final amendments’’). 

The Board adopted these amendments 

after taking into account public 

comments that were received on the 

requirements proposed in 2016 and in 

response to supplemental requests for 

comment issued in 2017 and 2021 as 

discussed in more detail below in 

connection with the amendments. 

In brief, the amendments include: 

• Amendments to AS 1015, Due 

Professional Care in the Performance of 

Work; AS 1105, Audit Evidence; AS 

1201, Supervision of the Audit 

Engagement; AS 1215, Audit 

Documentation; AS 1220, Engagement 

Quality Review; and AS 2101, Audit 

Planning; 

• A new auditing standard, AS 1206, 

Dividing Responsibility for the Audit 

with Another Accounting Firm, for 

situations in which the accounting firm 

issuing the auditor’s report divides 

responsibility for the audit with another 

accounting firm; and 

• Other related amendments to 

PCAOB auditing standards. 

In general, the amendments extend 

the risk-based supervision requirements 

of PCAOB auditing standards to all 

situations in which other auditors 

participate in an audit, unless the lead 

auditor divides responsibility for the 

audit with another auditor.61 The 

amendments also strengthen the 

requirements and provide additional 

direction to the lead auditor about its 

responsibilities. For the relatively 

infrequent situations when the lead 

auditor divides responsibility for the 

audit with another auditor, the 

amendments strengthen the existing 

approach under PCAOB standards. 

The amendments also rescind AS 

1205, Part of the Audit Performed by 

Other Independent Auditors, and AI 10, 

Part of the Audit Performed by Other 

Independent Auditors: Auditing 

Interpretations of AS 1205. 

The amendments to AS 1201 and AS 

2101 appear in the main body of each 

standard and in Appendix A of AS 

2101. As originally proposed, most of 

the amendments to these standards 

would have appeared in a new 

Appendix B of each standard. As 

proposed in the 2021 SRC, the 

provisions that would have appeared in 

Appendix B were instead relocated to 

the body of the two standards (AS 1201 

and AS 2101) to enhance the readability 

and usability of the amendments and to 

better facilitate their implementation. 

One commenter on the 2021 SRC 

commended the PCAOB for relocating 

the amendments from Appendix B of 

each standard to the body of the 

standards, stating that it improves 

usability and clarity. 

Definitions of Engagement Team, Lead 

Auditor, Other Auditor, and Referred-to 

Auditor 

See paragraphs .A3–.A6 of AS 2101 

To operationalize the requirements 

included in this release, the 

amendments define the terms 

‘‘engagement team,’’ ‘‘lead auditor,’’ 

‘‘other auditor,’’ and ‘‘referred-to 

auditor,’’ as discussed below. A 

commenter on the 2021 SRC 

recommended alignment of the 

terminology used in the PCAOB’s 

standards with that of the International 

Auditing and Assurance Standards 

Board (‘‘IAASB’’) and the American 

Institute of Certified Public Accountants 

Auditing Standards Board (‘‘ASB’’). 

After considering the comment, the 

Board adopted the definitions 

substantially as proposed, because they 

are designed for the requirements of this 

rulemaking, which differ from those in 

the analogous IAASB and ASB 

standards. These definitions are 

included in Appendix A of AS 2101 and 

referenced in other PCAOB standards, 

where applicable. 

Definition of ‘‘Engagement Team’’ 

See paragraph .A3 of AS 2101 

Under existing PCAOB standards, the 

engagement partner is responsible for 

the engagement and its performance, 

including the proper supervision of the 

work of engagement team members and 


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62See AS 1201.03. 63See Amendments to Auditing Standards for 

Auditor’s Use of the Work of Specialists, PCAOB 

Release No. 2018–006 (Dec. 20, 2018). 64See paragraph (a)(ii) of PCAOB Rule 1001, 

Definitions of Terms Employed in Rules, which 

defines the term ‘‘accountant.’’ (This footnote 

referring to Rule 1001 is included in the definition 

of ‘‘engagement team’’ appearing in AS 2101.A3.) 65The final amendments add the phrase ‘‘in 

connection with the audit’’ and replace ‘‘assist their 

firm’’ with ‘‘assist that auditor’’ for clarity. 66AS 1210, Using the Work of an AuditorEngaged Specialist, establishes requirements that 

apply to the use of specialists engaged by the 

auditor’s firm. Appendix A of AS 1105 sets forth 

the auditor’s responsibilities for using the work of 

a specialist employed or engaged by the company. 

(This footnote referring to AS 1210 and AS 1105 is 

included in the definition of ‘‘engagement team’’ 

appearing in AS 2101.A3.) 

67The term ‘‘engagement partner’s firm’’ is used 

in this rulemaking to describe the registered public 

accounting firm issuing the auditor’s report. (See 

first note to AS 2101.A4.) 68See AS 1210. 69AS 1220 applies to those persons. 70Reviewers under Appendix K of SEC Practice 

Section (‘‘SECPS’’) Section 1000.45, SECPS Member 

Firms with Foreign Associated Firms That Audit 

SEC Registrants, would not be considered members 

of the engagement team. Those reviewers, similar to 

the engagement quality reviewer, do not make 

decisions on behalf of the engagement team or 

assume any of the responsibilities of the 

engagement team. 

71AS 2601, Consideration of an Entity’s Use of a 

Service Organization, sets forth the auditor’s 

responsibilities with respect to using the work of 

service auditors who issue reports on the controls 

of a third-party service organization. 72This includes personnel of accounting firms 

described in rescinded AS 1205 as other auditors 

for whose work the ‘‘principal auditor’’ (which is 

the term used in AS 1205) assumes responsibility. 

By including these individuals in the engagement 

team, the amendments expand the lead auditor’s 

responsibility to apply the risk-based supervision 

approach to all accounting firms involved in the 

audit, except in situations in which the lead auditor 

divides responsibility for the audit with another 

accounting firm. (If the lead auditor divides 

responsibility for the audit with another accounting 

firm, that firm is considered a referred-to auditor 

under AS 1206.) 

73Because of their roles at the company, the work 

of individuals employed or engaged by the 

company is not subject to supervision under AS 

1201; they are not considered members of the 

engagement team under the adopted definition. 

PCAOB standards include requirements regarding 

the auditor’s use of work performed by some of 

these individuals. See, e.g., AS 1105, Appendix A; 

AS 2201, An Audit of Internal Control Over 

Financial Reporting That Is Integrated with An 

Audit of Financial Statements; AS 2605, 

Consideration of the Internal Audit Function. 

for compliance with PCAOB 

standards.62 The term ‘‘engagement 

team’’ is commonly used in PCAOB 

auditing standards but has not been 

defined. The definition of ‘‘engagement 

team’’ that the Board adopted in AS 

2101 will apply to AS 1201 and AS 

2101, as amended, and to the new 

standard, AS 1206. The term specifies, 

for example, the persons subject to the 

lead auditor’s supervision under AS 

1201, which standard will now apply to 

the relationship between the lead 

auditor and all other auditors for whose 

work the lead auditor assumes 

responsibility, including those currently 

covered by rescinded AS 1205. 

The Board adopted a revised 

definition to conform to previous 

amendments to the Board’s standards 

and to address 2021 SRC comments 

received. Subparagraph (2) of the 

revised definition conforms to 

terminology used in Appendix C, 

Supervision of the Work of AuditorEmployed Specialists, of AS 1201, 

which the Board adopted in 2018.63 As 

revised, the definition of ‘‘engagement 

team’’ includes: 

(1) Partners, principals, and 

shareholders of, and accountants 64 and 

other professional staff employed or 

engaged by, the lead auditor or other 

accounting firms who perform audit 

procedures on an audit or assist the 

engagement partner in fulfilling his or 

her planning or supervisory 

responsibilities on the audit pursuant to 

AS 2101 or AS 1201; and 

(2) Specialists who, in connection 

with the audit, (i) are employed by the 

lead auditor or an other auditor 

participating in the audit and (ii) assist 

that auditor in obtaining or evaluating 

audit evidence with respect to a relevant 

assertion of a significant account or 

disclosure.65

The definition excludes: 

(1) The engagement quality reviewer 

and those assisting the reviewer (to 

which AS 1220 applies); 

(2) Partners, principals, and 

shareholders of, and other individuals 

employed or engaged by, another 

accounting firm in situations in which 

the lead auditor divides responsibility 

for the audit with the other firm under 

AS 1206; and 

(3) Engaged specialists.66

In general, the engagement team, as 

defined, encompasses the engagement 

partner and individual accountants who 

perform procedures to obtain and 

evaluate audit evidence, as well as 

specialists employed by one of the 

participating audit firms who perform 

audit procedures. The following table 

illustrates the distinction between 

engagement team members and parties 

who are not engagement team members 

under the definition the Board adopted. 

Examples of engagement team members Examples of parties who are NOT engagement team members 

• Engagement partner • Auditor-engaged specialists.67

• Personnel from the engagement partner’s firm 68 who perform audit 

procedures on the audit 

• Engagement quality reviewer and those assisting the reviewer.69

• Appendix K or filing reviewer.70

• Service auditors of a third-party service organization.71

• Personnel of accounting firms and individual accountants outside the 

engagement partner’s firm who perform audit procedures on the 

audit (supervised under AS 1201) 72

• A firm professional who performs a contemporaneous quality control 

function (e.g., internal inspection or quality control review) but does 

not perform audit procedures or help plan or supervise the audit 

work 

• A firm professional in the national office or centralized group in the 

firm (including within the firm’s network) who performs audit procedures on the audit or assists in planning or supervising the audit 

• Individuals employed or engaged by the company being audited, 

such as a company’s internal auditors, a company’s specialists, and 

a company’s consultants.73

A commenter on the 2021 SRC asked 

whether the Board considered the 

potential ramifications of the difference 

between the proposed definition of 

‘‘engagement team’’ and the analogous 

term ‘‘audit engagement team’’ in SEC 

independence requirements. One 

commenter acknowledged that the 

Board addressed this question in the 

2016 Proposal and recommended that 

the Board add an explanatory footnote 

to the rule text in the definition of 

‘‘engagement team.’’ 

The Board purposely adopted a 

definition of ‘‘engagement team’’ that is 

narrower than the definition of ‘‘audit 

engagement team’’ in the SEC’s 

independence rules. See Rule 2– 

01(f)(7)(i) of Regulation S–X, 17 CFR 

210.2–01(f)(7)(i). In addition to the 

individuals within the Board’s 

definition of ‘‘engagement team,’’ the 

definition in SEC Rule 2–01(f)(7)(i) also 

encompasses certain individuals who 

are not included in the Board’s 

definition, such as the engagement 

quality reviewer. The Board noted that 

neither the definition of ‘‘engagement 

team’’ nor any other amendments in this 


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74See proposed rule text for further amendments 

made to PCAOB standards in order to clarify that 

the term ‘‘engagement team’’ has the same meaning 

(or, where applicable, analogous meaning) as the 

defined term in AS 2101.A3. 

75The amendments rescind AS 1205, which uses 

the term ‘‘principal auditor.’’ 

76See Other Related Amendments to PCAOB 

Auditing Standards. 

77See paragraph (r)(i) of PCAOB Rule 1001, 

which defines the term ‘‘registered public 

accounting firm.’’ This footnote is included within 

the definition appearing in AS 2101.A4. 

78See paragraph .05a of AS 2301, The Auditor’s 

Responses to the Risks of Material Misstatement, 

which describes making appropriate assignments of 

significant engagement responsibilities. See also AS 

1015.06, according to which ‘‘[e]ngagement team 

members should be assigned to tasks and 

supervised commensurate with their level of 

knowledge, skill, and ability.’’ This footnote is 

included within the definition appearing in AS 

2101.A4. 

79For this purpose, the term ‘‘secondee’’ refers to 

an individual participating in a secondment 

arrangement in which, for at least three consecutive 

months, (1) a professional employee of an 

accounting firm in one country works for a 

registered public accounting firm that is located in 

another country and is issuing an auditor’s report, 

and (2) the professional employee performs audit 

procedures with respect to entities and their 

operations in that other country and does not 

perform more than de minimis audit procedures in 

relation to entities or business operations in the 

country of his or her employer. A secondee can be 

either physically located in that other country or 

working through a remote work arrangement. This 

footnote is included within the definition appearing 

in AS 2101.A4. 

80See, e.g., AS 2101.04. 

81See 2021 SRC at A1–16 (proposed footnote 5 

of AS 2101.A4). 

82See Staff Guidance, Form AP, Auditor 

Reporting of Certain Audit Participants, and Related 

Voluntary Audit Report Disclosure Under AS 3101, 

The Auditor’s Report on an Audit of Financial 

Statements When the Auditor Expresses an 

Unqualified Opinion (Dec. 17, 2021). 

release affect the definitions within, or 

the applicability of, the independence 

requirements of the SEC. 

Another commenter expressed 

concern that the definition of 

‘‘engagement team’’ for purposes of AS 

2101, AS 1201, and AS 1206 could have 

implications for other standards. This 

commenter cited other auditing 

standards outside of these three 

standards that use the term 

‘‘engagement team’’ and encouraged the 

PCAOB to revisit these instances to 

determine the implications for those 

standards of the new definition. The 

Board noted that, although the 

definition is not repeated across all 

other PCAOB standards, the term 

‘‘engagement team’’ in other PCAOB 

standards has the same meaning as the 

defined term in AS 2101.A3.74

Finally, a couple of commenters 

recommended clarifying the definition 

of ‘‘engagement team’’ with respect to 

auditor-employed specialists. One 

commenter suggested specifying that 

auditor-employed specialists can be 

engagement team members only if they 

participate in the audit, while the other 

suggested changing the proposed 

reference to ‘‘their firm’’ to instead 

employ the defined terms ‘‘lead 

auditor’’ and ‘‘other auditor.’’ The Board 

made corresponding clarifying edits to 

subparagraph (2) of the definition. Apart 

from making these changes and certain 

minor clarifying edits, the Board 

adopted the definition of ‘‘engagement 

team’’ as proposed in the 2021 SRC. 

Definition of ‘‘Lead Auditor’’ 

See paragraph .A4 of AS 2101 

The amendments introduce the new 

term ‘‘lead auditor’’ for both types of 

scenarios addressed by this rulemaking: 

supervising other auditors’ work under 

AS 1201, and dividing responsibility for 

the audit with another accounting firm 

under AS 1206.75 The term ‘‘lead 

auditor’’ replaces the term ‘‘principal 

auditor’’ that is currently used in several 

PCAOB standards.76 Under the 

amendments, the term ‘‘lead auditor’’ 

means the firm issuing the auditor’s 

report, the engagement partner of that 

firm, and other personnel of that firm 

(or their functional equivalents) who 

perform planning or supervisory 

responsibilities from that firm. 

The definition is key to this 

rulemaking because it identifies the firm 

and individuals who are responsible for 

carrying out the requirements under the 

amendments: 

Lead auditor— 

(a) The registered public accounting 

firm 77 issuing the auditor’s report on 

the company’s financial statements and, 

if applicable, internal control over 

financial reporting; and 

(b) The engagement partner and other 

engagement team members who both: 

(1) Are partners, principals, 

shareholders, or employees of the 

registered public accounting firm 

issuing the auditor’s report (or 

individuals who work under that firm’s 

direction and control and function as 

the firm’s employees); and 

(2) Assist the engagement partner in 

fulfilling his or her planning or 

supervisory responsibilities on the audit 

pursuant to AS 2101 or AS 1201.78

Note: The registered public 

accounting firm issuing the auditor’s 

report is also referred to in this standard 

as ‘‘the engagement partner’s firm.’’ 

Note: Individuals such as secondees 79

who work under the direction and 

control of the registered public 

accounting firm issuing the auditor’s 

report would function as the firm’s 

employees. 

Several commenters on the 2021 SRC 

indicated that the definition of ‘‘lead 

auditor’’ was sufficiently clear. One 

commenter on the 2021 SRC stated there 

was lack of clarity about the use of the 

term ‘‘lead auditor’’ in circumstances 

when the audit does not involve other 

auditors or referred-to auditors. This 

commenter suggested that the proposed 

standard explicitly acknowledge either: 

(1) the registered public accounting firm 

that issues the auditor’s report is always 

the lead auditor, including when there 

are no other auditors or referred-to 

auditors or (2) the registered public 

accounting firm that issues the auditor’s 

report is only a lead auditor if the audit 

involves other auditors or referred-to 

auditors (and therefore modifications 

would need to be made to the definition 

of engagement team). 

In the proposing releases, the Board 

stated that the term ‘‘lead auditor’’ 

would apply to these scenarios: 

supervising other auditors under AS 

1201 and dividing responsibility for the 

audit under proposed AS 1206. In 

addition, the amendments already 

clearly indicate that the term will apply 

when other auditors or referred-to 

auditors are involved in the audit.80

The description of ‘‘secondee’’ was 

added to the proposed amendments in 

the 2021 SRC.81 Several commenters 

said that the description was too 

prescriptive, given the flexibility in 

location where audit professionals may 

work, as demonstrated throughout the 

COVID–19 pandemic. Most of these 

commenters were supportive of its 

inclusion as an example in the rule text, 

but recommended that ‘‘secondee’’ not 

be defined so narrowly. They also 

suggested that individuals who work at 

shared service centers be included as an 

example in the rule text given the 

continued increase in their use. In 

addition, one commenter said that it did 

not agree with the Board that at all times 

(now and in the future) individuals who 

work at shared service centers will work 

under the direction and control of and 

function as employees of the lead 

auditor firm. 

After considering the comments 

received, the Board is revising footnote 

5 of AS 2101.A4 to be similar to revised 

Form AP staff guidance 82 on secondees. 

Those revisions recognized that, 

because of the recent advances in 

technology and remote work 

arrangements, location should not 

necessarily be a factor in determining 

whether secondees work under the 

direction and control of the firm and 

function as their employees. Further, 

the Board agrees that under the 

amendments secondees from other 

accounting firms and employees of 


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83For example, AS 1205 uses the term ‘‘other 

auditors’’ to describe accounting firms whose work 

the lead auditor uses or with which it divides 

responsibility for the audit. By contrast, AS 

1215.18–.19 uses the term ‘‘other auditors’’ when 

describing offices of the firm issuing the audit 

report and other firms participating in the audit. 

84The term ‘‘business units’’ includes 

subsidiaries, divisions, branches, components, or 

investments. This footnote is included within the 

definition appearing in AS 2101.A6. 

85See AS 1206, which sets forth the lead auditor’s 

responsibilities regarding dividing responsibility for 

the audit of the company’s financial statements and, 

if applicable, internal control over financial 

reporting, with a referred-to auditor. This footnote 

is included within the definition appearing in AS 

2101.A6. 

86 In addition, this document discusses 

requirements for the lead auditor in AS 1206 

relating to the referred-to auditor’s (1) compliance 

with the SEC independence and PCAOB 

independence and ethics requirements, (2) 

registration pursuant to the rules of the PCAOB, and 

(3) knowledge of the relevant accounting, auditing, 

and financial reporting requirements. 

shared service centers who both work 

under the firm’s direction and control 

(as with other individuals who work in 

the role of firm employees) and assist 

the engagement partner in fulfilling 

planning or supervisory responsibilities 

on the audit are part of the lead auditor. 

Regarding the comment that 

individuals at shared service centers 

would not always function as 

‘‘employees of the lead auditor’s firm,’’ 

the amendments do not provide that all 

shared service center staff would 

function as employees of the lead 

auditor firm. For example, staff at a 

shared service center could be working 

on the audit under the direction and 

control of an audit firm other than the 

lead auditor. In that case, the 

individuals at the shared service center 

would function as employees of the 

other auditor, not the lead auditor firm. 

The Board considered these 

comments and determined that the 

proposed definition of lead auditor is 

sufficiently clear and, except for the 

revision to the footnote regarding 

secondees discussed above, adopted it 

as proposed in the 2021 SRC. 

Definitions of ‘‘Other Auditor’’ and 

‘‘Referred-to Auditor’’ 

For the Term ‘‘Other Auditor,’’ See 

Paragraph .A5 of AS 2101, and For the 

Term ‘‘Referred-to Auditor,’’ See 

Paragraph .A6 of AS 2101 

Several existing PCAOB standards use 

the term ‘‘other auditor’’ to encompass 

any auditors outside the lead auditor 

that participate in an audit, regardless of 

whether the lead auditor supervises 

them under AS 1201, assumes 

responsibility for their work under AS 

1205, or makes reference to them under 

AS 1205.83 The amendments define two 

terms: ‘‘other auditor,’’ and ‘‘referred-to 

auditor.’’ These definitions are as 

follows: 

Other auditor— 

(a) A member of the engagement team 

who is not: 

(1) A partner, principal, shareholder, 

or employee of the lead auditor or 

(2) An individual who works under 

the direction and control of the 

registered public accounting firm 

issuing the auditor’s report and 

functions as that firm’s employee; and 

(b) A public accounting firm, if any, 

of which such engagement team 

member is a partner, principal, 

shareholder, or employee. 

Referred-to auditor— 

A public accounting firm, other than 

the lead auditor, that performs an audit 

of the financial statements and, if 

applicable, internal control over 

financial reporting, of one or more of the 

company’s business units 84 and issues 

an auditor’s report in accordance with 

the standards of the PCAOB to which 

the lead auditor makes reference in the 

lead auditor’s report on the company’s 

financial statements and, if applicable, 

internal control over financial 

reporting.85

Several commenters on the 2021 SRC 

indicated that the definition of ‘‘other 

auditor’’ was sufficiently clear, and no 

commenters expressed concern about 

the definition of ‘‘referred-to auditor.’’ 

Some commenters on the 2016 Proposal 

asked whether the term ‘‘referred-to 

auditor’’ is aligned with the term 

‘‘principal accountant’’ used by the SEC. 

The Board noted that the definitions it 

adopted do not affect the applicability 

of SEC terms or rules to audits involving 

other auditors or referred-to auditors, 

including the definition of ‘‘principal 

accountant.’’ 

In addition, one commenter on the 

2016 Proposal stated that the only 

difference between the definitions of 

other auditor and referred-to auditor 

appears to be divided responsibility, but 

noted the definitions are substantially 

different. The Board notes that these 

definitions reflect differences in lead 

auditor responsibilities with respect to 

the other auditor and referred-to 

auditor. As noted above, under the 

amendments, the term ‘‘other auditor’’ 

encompasses both the individuals 

participating in the audit and their firm. 

In contrast, the lead auditor divides 

responsibility for the audit with the 

referred-to auditor, which issues the 

auditor’s report on the financial 

statements (and, if applicable, internal 

control over financial reporting) of a 

company’s business unit. Thus, the term 

‘‘referred-to auditor’’ applies only to the 

firm because the firm issues an auditor’s 

report in the divided-responsibility 

situation. 

The Board considered the comments 

and determined that the definitions of 

‘‘other auditor’’ and ‘‘referred-to 

auditor’’ are sufficiently clear and 

adopted them as proposed in the 2021 

SRC. 

Planning the Audit 

See Amendments to AS 2101 

In general, the amendments to AS 

2101 carry forward and update certain 

requirements of AS 1205 and include 

certain procedures to be performed by 

the lead auditor. 

This section discusses planning 

requirements in AS 2101 for audits in 

which the lead auditor supervises the 

work of other auditors in accordance 

with AS 1201. It also discusses certain 

planning requirements, which appear in 

AS 2101, for audits in which the lead 

auditor divides responsibility for the 

audit with referred-to auditors in 

accordance with AS 1206.86 This 

section on planning requirements 

addresses the following topics: 

• Serving as the lead auditor in an 

audit that involves other auditors or 

referred-to auditors (determining 

sufficiency of participation); 

• Other auditors’ compliance with 

independence and ethics requirements; 

• PCAOB registration status of other 

auditors; 

• Knowledge, skill, and ability of and 

communications with other auditors; 

and 

• Determining locations or business 

units at which audit procedures should 

be performed. 

Serving as the Lead Auditor in an Audit 

That Involves Other Auditors or 

Referred-to Auditors (Determining 

Sufficiency of Participation) 

See Paragraphs .06A–.06C of AS 2101 

Under AS 2101 as amended, in audits 

involving other auditors or referred-to 

auditors, the engagement partner should 

determine whether the participation of 

his or her firm is sufficient for the firm 

to carry out the responsibilities of a lead 

auditor and to report as such on the 

company’s financial statements. The 

considerations for determining the 

sufficiency of the firm’s participation 

apply to audits in which the lead 

auditor supervises other auditors’ work, 

divides responsibility for the audit with 

another accounting firm, or both. In 

contrast, the 50-percent participation 

threshold (discussed below) applies 

only to audits in which the lead auditor 

divides responsibility for the audit with 

another accounting firm. 


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87See AS 2101.05. 

88Below, this document discusses further 

conditions to be met in order to divide 

responsibility with another accounting firm. 

89See AS 2101.03. 

90See AS 1015.06. 

91 In a multi-tiered audit (see AS 1201.14), the 

consideration regarding extent of supervision 

applies only to the firm’s supervision of a first other 

auditor and any other auditor that is supervised 

directly by the firm. See discussion of multi-tiered 

audits below. 92See 2017 SRC at 9. 

Planning is not a discrete phase of an 

audit, but rather is a continual and 

iterative process that continues until the 

completion of the audit.87 Therefore the 

engagement partner is expected to 

revisit his or her determination of the 

sufficiency of the lead auditor’s 

participation throughout the audit if 

circumstances change. This may occur, 

for example, because of changes due to 

business combinations, divestitures, or 

other events that could affect the audit 

plan or allocation of work between the 

lead auditor and other auditors. 

Considerations for Serving as the Lead 

Auditor 

See First Paragraph of .06A(a–c) of AS 

2101 

AS 1205, which is being rescinded, 

provides that when significant parts of 

the audit are performed by other 

auditors (‘‘other auditors’’ and 

‘‘referred-to auditors’’ under the 

amendments), the principal auditor 

(‘‘lead auditor’’ under the amendments) 

must decide whether the principal 

auditor’s own participation is sufficient 

to enable it to serve as the principal 

auditor and issue the auditor’s report on 

the company’s financial statements. 

Under AS 1205.02, when determining 

whether the firm sufficiently 

participates in the audit, the principal 

auditor is required to consider, among 

other things, (i) the materiality of the 

portion of the financial statements 

audited in comparison with the portion 

audited by other auditors; (ii) the extent 

of the auditor’s knowledge of the overall 

financial statements; and (iii) the 

importance of the components audited 

by the auditor in relation to the 

enterprise as a whole. 

The amendments to AS 2101 

strengthen the existing requirement for 

determining the sufficiency of 

participation by: (i) extending the 

determination requirement to all audits 

involving other auditors and referred-to 

auditors,88 not just audits that have been 

covered by AS 1205; (ii) imposing the 

determination requirement specifically 

on the engagement partner; and (iii) 

specifying certain considerations, based 

on risk and other factors, that should be 

taken into account in making the 

determination. 

In general, the sufficiency 

requirement is intended to increase the 

likelihood that the firm issuing the 

auditor’s report (i.e., the lead auditor) 

meaningfully participates in the audit. 

The Board believes that compliance 

with this requirement should benefit all 

audits involving other auditors and 

referred-to auditors, not only audits that 

have been covered by AS 1205. 

Imposing the sufficiency requirement on 

the engagement partner is consistent 

with the engagement partner’s existing 

responsibilities under PCAOB standards 

for planning the audit 89 and for 

assigning tasks to and supervising 

engagement team members.90

The amendments require that, when 

making the sufficiency determination, 

the engagement partner take into 

account the following, in combination, 

i.e., the engagement partner should take 

into account all three considerations: 

• Importance—The importance of the 

locations or business units for which the 

engagement partner’s firm performs 

audit procedures in relation to the 

financial statements of the company as 

a whole, considering quantitative and 

qualitative factors; 

• Risk—The risks of material 

misstatement associated with the 

portion of the company’s financial 

statements for which the engagement 

partner’s firm performs audit 

procedures, in comparison with the 

portions for which the other auditors 

perform audit procedures or the 

portions audited by the referred-to 

auditors; and 

• Extent of supervision—The extent 

of the engagement partner’s firm’s 

supervision of the other auditors’ work 

for portions of the company’s financial 

statements for which the other auditors 

perform audit procedures.91

Of these three considerations, only 

the risk consideration was included in 

the 2016 Proposal. Although it was 

intended to encompass both 

quantitative and qualitative aspects of 

participation, some commenters on the 

2016 Proposal viewed a determination 

based solely on risk as too narrow, and 

some viewed it as primarily 

quantitative. Commenters expressed 

concern that it might result in denying 

a firm the ability to serve as lead auditor 

if it performed procedures only at the 

corporate headquarters and not at the 

company’s operating units (which were 

audited by other auditors), even if that 

firm is otherwise best positioned to 

serve as lead auditor. 

The importance consideration was 

added in the 2017 SRC, after 

considering comments received on the 

2016 Proposal. The addition was 

intended to more expressly address 

circumstances in which the lead auditor 

audits the locations or business units 

where the primary financial reporting 

decisions are made and consolidated 

financial statements are prepared, even 

though those locations or business units 

might not constitute a significant 

portion of the company’s operations.92

A number of commenters on the 2017 

SRC commented favorably on the 

importance consideration, noting 

generally that it would more directly 

enable the engagement partner to 

consider both quantitative and 

qualitative factors when determining the 

sufficiency of participation. 

Some commenters on the 2017 SRC 

viewed the sufficiency determination 

based on the two proposed 

considerations (importance and risk) as 

too restrictive for certain audits. 

Examples provided by the commenters 

included companies with highly 

dispersed management and financial 

reporting functions, especially those 

whose operations, headquarters, and 

financial reporting functions are 

primarily outside the company’s 

corporate domicile. Commenters stated 

that applicable laws and regulations 

might require that the company’s audit 

report be issued by a firm located in the 

jurisdiction where the company is 

domiciled, regardless of how much of 

the audit is performed by that auditor 

compared to other auditors. To address 

this issue, the commenters suggested 

providing additional considerations for 

the sufficiency-of-participation 

determination, including the firm’s 

extent of supervision. 

The third consideration (extent of 

supervision) was added in the 2021 

SRC. This addition was designed to 

allow for a more comprehensive 

determination of the prospective lead 

auditor’s involvement. 

Several commenters on the 2021 SRC 

generally supported the proposed 

addition of the consideration related to 

the extent of the engagement partner’s 

firm’s supervision of other auditors’ 

work. Some of these comments also 

agreed that the sufficiency-ofparticipation determination by the 

engagement partner should be a riskbased assessment involving quantitative 

and qualitative considerations. One 

commenter on the 2021 SRC stated its 

understanding that an engagement 

partner may determine that his or her 

firm can serve as lead auditor by 

adjusting the extent of his or her firm’s 

supervision of the other auditors’ work 

to overcome instances where the other 


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93Such arrangements are sometimes referred to as 

‘‘letterbox audits.’’ 

94Footnote 4B to AS 2101.06Ac has been revised 

to add the following sentence: ‘‘See also AS 

1201.07, which states that for engagements that 

involve other auditors, AS 1201.08–.15 further 

describe procedures to be performed by the lead 

auditor with respect to the supervision of the work 

of other auditors, in conjunction with the required 

supervisory activities set forth in AS 1201.’’ 

95The lead auditor’s analysis of its sufficiency of 

participation should be documented pursuant to AS 

1215.06, which requires, among other things, that 

audit documentation contain sufficient information 

to enable an experienced auditor, having no 

previous connection with the engagement, to 

understand the nature, timing, extent, and results 

of the procedures performed, evidence obtained, 

and conclusions reached. 

96According to PCAOB staff analysis of Form AP 

filings with the PCAOB, lead auditors currently 

divide responsibility with another auditor in about 

40 issuer audits per year. Form AP filings in 2021, 

2020, 2019, and 2018 disclosed 36, 41, 37, and 42 

divided-responsibility audits, respectively. 

97This release, below, discusses further 

conditions to be met in order to divide 

responsibility with another accounting firm. 

98The threshold is similar to a quantitative 

threshold that appears in staff guidance set forth in 

the Financial Reporting Manual of the SEC Division 

of Corporation Finance (‘‘Corp. Fin. Manual’’). The 

Corp. Fin. Manual provides that a lead auditor is 

generally expected to have audited or assumed 

responsibility for at least 50 percent of the assets 

and revenues of the consolidated entity. See SEC, 

Division of Corporation Finance, Financial 

Reporting Manual, Section 4140.1. 

99Notably, while the comparison based on the 

importance of the locations or business units and 

risks of material misstatement associated with the 

portion of the financial statements is made singly 

(i.e., with regard to the engagement partner’s firm’s 

participation), the additional threshold based on 

assets and revenue is made with regard to all 

referred-to auditors in the aggregate. 

auditors are performing audit 

procedures for significant parts of the 

audit. This same commenter said it 

would be helpful for the Board to 

acknowledge that an auditor who 

performs relatively fewer audit 

procedures on global business units can 

still be considered the lead auditor 

based on legal or regulatory 

requirements and his or her firm’s 

supervision of other auditors. 

Other commenters continued to have 

concerns similar to those expressed in 

2017 (e.g., regarding jurisdictional 

matters) even with the additional 

consideration. These commenters 

suggested that the Board provide further 

considerations, and therefore additional 

flexibility, for the determination. 

The Board believes the three 

considerations will enable engagement 

partners to address the multitude of 

scenarios encountered in practice when 

determining their firms’ sufficiency of 

participation. With regard to the 

comments on jurisdictional challenges 

posed by laws and regulations, if the 

auditor’s report is required to be issued 

by a firm licensed in a certain 

jurisdiction, under the amendments that 

firm could serve as lead auditor (subject 

to certain conditions such as necessary 

extent of supervision), even if it does 

not perform audit procedures on many 

of the company’s subsidiaries. In 

addition, a firm could obtain additional 

staff to perform audit procedures under 

the firm’s direction and control 

functioning as the firm’s employees in 

order to be able to serve as the lead 

auditor. Adding more considerations, as 

some commenters suggested, could 

increase the risk that the firm issuing 

the auditor’s report does not 

meaningfully participate in the audit, 

and thus was the ‘‘lead auditor’’ in 

name only.93 Permitting such 

arrangements would not achieve the 

intent of the amendments. 

One commenter pointed out that with 

respect to divided-responsibility 

situations, the lead auditor often may 

not be able to fully apply certain 

considerations (e.g., the concept of 

‘‘supervision’’ in AS 2101.06Ac). The 

Board noted that in a dividedresponsibility situation, the overall 

principles of .06Aa–b are the relevant 

considerations, because the 

consideration in .06Ac does not by its 

terms address referred-to auditors. AS 

2101.06Ac states that the ‘‘extent of the 

engagement partner’s firm’s supervision 

of the other auditors’ work for portions 

of the company’s financial statements 

for which the other auditors perform 

audit procedures’’ (emphasis added). 

After considering the comments 

received, the Board adopted the 

requirements substantially as 

proposed.94 The engagement partner 

will take into account the three 

considerations (importance, risk, and 

supervision) in combination to 

determine whether the full range of his 

or her firm’s involvement in the audit 

constitutes sufficient participation to 

serve as the lead auditor.95

Fifty-Percent Participation Threshold 

for Divided-Responsibility Audits 

See Second Paragraph of .06A of AS 

2101 

For divided-responsibility audits,96

the Board determined to adopt, as 

proposed, amendments to reflect the 

following ‘‘50-percent threshold,’’ 

which applies in addition to two of the 

three considerations for determining the 

sufficiency of participation discussed 

above (importance and risk):97

[T]he participation of the engagement 

partner’s firm ordinarily is not sufficient for 

it to serve as lead auditor if the referred-to 

auditors, in aggregate, audit more than 50 

percent of the company’s assets or revenues. 

This 50-percent threshold is intended 

to reduce the likelihood that the lead 

auditor divides responsibility with an 

accounting firm or firms that audit a 

majority of the company’s assets or 

revenue, and is consistent with the 

Board’s approach to reinforcing the 

accountability of the lead auditor in 

audits involving other auditors.98

Including this threshold in the 

amendments also preserves a 

longstanding practice of the profession. 

One commenter on the 2021 SRC 

asserted (with respect to the 50-percent 

threshold for divided-responsibility 

audits) that a firm’s analysis as to 

whether it can reasonably serve as lead 

auditor must consider all the facts and 

circumstances, rather than simply 

consolidated assets or revenues. 

Another commenter asked that the 

wording of the 50-percent threshold be 

revised when referred-to auditors are 

involved because there are scenarios in 

which either assets or revenues audited 

by the referred-to auditor are greater 

than the assets or revenues audited by 

the lead auditor, such as when 

consolidated revenues of the company 

overall are nominal, but the amounts 

that do exist are audited by the referredto auditor. This commenter believed 

that use of the term ‘‘or’’ will allow for 

false positives and restrict the ability of 

lead auditors to make reference to 

referred-to-auditors. 

After considering the comments, the 

Board adopted the 50-percent threshold 

as proposed. That threshold creates a 

presumption (not a bright line test) that 

the lead auditor will not divide 

responsibility with an accounting firm 

or firms that audit a majority of the 

company’s assets or revenues.99 A firm 

could overcome the presumption and 

serve as lead auditor in exceptional 

situations, involving, for example, lateyear acquisitions or other unanticipated 

events or conditions that increase the 

portion of assets or revenues audited by 

referred-to auditors beyond the 50- 

percent threshold. Under PCAOB 

standards, the firm would need to 

document why its participation in the 

audit was sufficient to serve as lead 

auditor, including how the firm satisfied 

the criteria based on the importance of 

the locations or business units it audited 

and risks of material misstatement 

associated with the portion of the 

company’s financial statements that it 

audited. 

The description of the 50-percent 

threshold in the amendments differs 

from the analogous description in the 

Corp. Fin. Manual because the PCAOB 

description uses terminology consistent 

with the amendments (whereas the 


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100 In addition, the lead auditor would perform 

audit procedures with respect to locations or 

business units selected for testing that the lead 

auditor assigned to itself. 

101See AS 2110.59b. 

102See AS 2301.41. 

103See paragraphs .30–.31 of AS 2810, Evaluating 

Audit Results. 

104See AS 2810.07–.09. 

105See AS 2810.10–.23. 

106See AS 2201.62–.70. 

107See AS 2810.24–.27. 

108See AS 2810.28–.29. 

109See AS 2810.32–.36. 

110See footnote 4C of AS 2101.06B, which cites, 

as examples, AS 1201.06, AS 2101.11 (‘‘The auditor 

should assess the risks of material misstatement to 

the consolidated financial statements associated 

with the location or business unit and correlate the 

amount of audit attention devoted to the location 

or business unit with the degree of risk of material 

misstatement associated with that location or 

business unit.’’), and, more generally, AS 2301. 

111See conforming amendments to AS 2201.C8, 

.C10, and .C11. The terminology in these 

paragraphs has been updated to align with the 

amendments, without changing the intent of the 

requirements in these paragraphs. 

112See discussion below that, in multi-tiered 

audits, proposed AS 2101.06E would allow the lead 

auditor to seek assistance from the first other 

auditor in performing the procedures described in 

proposed AS 2101.06D. See also AS 1206 for 

requirements relating to audits involving referredto auditors. 

113See AS 2101.06b (requiring the auditor to 

‘‘[d]etermine compliance with independence and 

ethics requirements’’ at the beginning of the audit 

and to reevaluate the determination throughout the 

audit). As noted above, the use of ‘‘independence 

and ethics requirements’’ in this release refers to 

PCAOB independence and ethics requirements and 

SEC independence requirements. 

Corp. Fin. Manual’s formulation uses 

terminology consistent with preamendment standards) and because the 

PCAOB description is written in the 

negative: ‘‘in an audit that involves 

referred-to auditors . . . the 

participation of the engagement 

partner’s firm ordinarily is not sufficient 

for it to serve as lead auditor if the 

referred-to auditors, in aggregate, audit 

more than 50 percent of the company’s 

assets or revenues.’’ 

Supervising Based on Risk 

See Paragraph .06B of AS 2101 

In some audits, the lead auditor might 

decide to increase the extent of its 

supervision of other auditors’ work to 

provide additional support for the 

sufficiency-of-participation 

determination. Although this practice 

would contribute to the lead auditor’s 

participation to some extent, performing 

additional supervisory procedures with 

respect to the other auditors does not, 

by itself, relieve the lead auditor of its 

own obligation to perform meaningful 

audit procedures in the audit. 

The amendments do not allow an 

audit firm to serve as lead auditor when 

all of the audit procedures are 

performed by other auditors, even under 

the lead auditor’s supervision. A 

determination to serve as lead auditor 

under the amendments needs to be 

supported by a combination of 

supervision of other auditors by the lead 

auditor and the lead auditor’s 

performance of audit procedures. 

In particular, the Board believes that 

a lead auditor, as the firm that issues the 

audit report, should perform audit 

procedures to a meaningful extent even 

if the company’s business operations 

and financial reporting functions are 

located in a different country than the 

lead auditor. The following are 

examples 100 of such procedures: 

• Procedures related to risks 

pervasive to the financial statements, 

such as risk assessment procedures 

directed to risks to the consolidated 

financial statements as a whole.101

• Procedures related to the 

consolidated financial statements, such 

as audit procedures regarding the 

period-end financial reporting 

process 102 for the consolidated financial 

statements, and evaluation of the 

presentation of the consolidated 

financial statements, including the 

disclosures.103

• Other procedures related to the 

overall evaluation of audit results, such 

as performing overall analytical review 

procedures; 104 evaluating accumulated 

misstatements; 105 evaluating identified 

control deficiencies; 106 evaluating the 

qualitative aspects of the overall 

financial statements, including potential 

management bias; 107 evaluating 

conditions related to fraud risk 

assessment; 108 and evaluating the 

sufficiency and appropriateness of the 

audit evidence obtained. 109

In these examples, the lead auditor 

would not need to perform these 

procedures exclusively. Rather, it could 

ask other auditors for assistance with 

some aspects of the above procedures, 

such as obtaining audit evidence 

relating to the business units assigned to 

the other auditors. 

In the amendments, AS 2101.06B, 

which is intended to be a reminder 

concerning existing requirements, 

provides that in an audit that involves 

other auditors performing work 

regarding locations or business units, 

the involvement of the lead auditor 

(through a combination of planning and 

performing audit procedures and 

supervision of other auditors) should be 

commensurate with the risks of material 

misstatement associated with those 

locations or business units. The 

requirement draws from existing 

requirements in AS 1201, AS 2101, and 

AS 2301, which require greater 

involvement in areas of greater risk.110

No commenters opposed the 

requirement. 

The Board adopted this provision as 

proposed. 

Sufficiency Considerations in an 

Integrated Audit of Financial Statements 

and Internal Control Over Financial 

Reporting 

See Paragraph .06C of AS 2101 

In the amendments, AS 2101.06C 

states that in an integrated audit of a 

company’s financial statements and its 

internal control over financial reporting 

(‘‘ICFR’’) that involves other auditors or 

referred-to auditors, the lead auditor of 

the financial statements must 

participate sufficiently in the audit of 

ICFR to provide a basis for serving as 

the lead auditor of ICFR. Only the lead 

auditor of the financial statements can 

be the lead auditor of ICFR. This 

amendment incorporates an existing 

requirement from AS 2201 regarding the 

sufficiency of the lead auditor’s 

participation in the integrated audit of 

financial statements and ICFR.111 No 

commenters objected to this 

requirement, and the Board adopted it 

as proposed. 

Other Auditors’ Compliance With 

Independence and Ethics Requirements 

See Paragraphs .06D and .06F of AS 

2101 112

The amendments to AS 2101 relating 

to auditor independence and ethics 

requirements build on the existing, 

overarching responsibility of the auditor 

to determine compliance with 

independence and ethics 

requirements.113 The amendments are 

designed to position the lead auditor to 

identify matters that warrant further 

attention when determining the other 

auditor’s compliance with those 

requirements. Commenters on the 

proposing releases generally agreed that 

the lead auditor should perform 

procedures regarding other auditors’ 

compliance with these requirements. 

Several commenters, however, raised 

questions about specific aspects of the 

provisions, which are discussed below. 

Understanding the Other Auditor’s 

Knowledge and Experience; Obtaining 

an Affirmation About Policies and 

Procedures, Changes in Circumstances 

See Paragraphs .06Da, .06Db(1), and 

.06Dc(1)–(2) of AS 2101 

The Board adopted the amendments 

discussed in this section as they were 

proposed in the 2021 SRC. The 


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114The final amendments use the term 

‘‘affirmation’’ for certain communications within 

the engagement team (see, e.g., AS 2101.06Db, AS 

2101.06F, and AS 2101.06Hb), to better differentiate 

them from certain communications outside the 

engagement team, which are described in the 

amendments as ‘‘representations’’ (see, e.g., AS 

1206). 

115See AS 2101.06Dc, which applies to all 

affirmations and descriptions required by paragraph 

.06Db. 

116See note to AS 2101.06b regarding 

reevaluating compliance. 

117See also QC 20, System of Quality Control for 

a CPA Firm’s Accounting and Auditing Practice. 

118See Rules 2–01(c)(1) and 2–01(c)(2) of 

Regulation S–X, 17 CFR 210.2–01(c)(1) and 17 CFR 

210.2–01(c)(2). 

119PCAOB and SEC independence rules define 

‘‘affiliate of the audit client.’’ See PCAOB Rule 

3501(a)(ii); Rule 2–01(f)(4) of Regulation S–X, 17 

CFR 210.2–01(f)(4). For rules regarding the 

prohibition of non-audit services, see Rules 2– 

01(c)(4) and 2–01(b) of Regulation S–X, 17 CFR 

210.2–01(c)(4) and 17 CFR 210.2–01(b); PCAOB 

Rule 3522, Tax Transactions; and PCAOB Rule 

3523, Tax Services for Persons in Financial 

Reporting Oversight Roles. See also PCAOB Rule 

3521, Contingent Fees. 

120See Rule 2–01(c)(3) of Regulation S–X, 17 CFR 

210.2–01(c)(3). 

121Concept Release: Potential Approach to 

Revisions to PCAOB Quality Control Standards, 

PCAOB Release No. 2019–003 (Dec. 17, 2019). 

122The IAASB adopted ISQM 1 in December 

2020, and it will become effective on December 15, 

2022. See IAASB, ISQM 1, Quality Management for 

Firms that Perform Audits or Reviews of Financial 

Statements, or Other Assurance or Related Services 

Engagements (Dec. 17, 2020). 

amendments in AS 2101.06D require the 

lead auditor to perform certain 

procedures ‘‘in conjunction with 

determining compliance with’’ 

independence and ethics requirements, 

to carry out its responsibilities pursuant 

to the existing requirements in 

paragraph .06b of AS 2101. 

AS 2101.06Da requires that the lead 

auditor obtain an understanding of the 

other auditor’s knowledge of 

independence and ethics requirements 

and its experience in applying the 

requirements. AS 2101.06Db(1) requires 

that the lead auditor obtain from the 

other auditor and review a written 

affirmation 114 as to whether the other 

auditor has policies and procedures that 

provide reasonable assurance that it 

maintains compliance with 

independence and ethics requirements. 

If the other auditor does not have such 

policies and procedures, the lead 

auditor is required to obtain from the 

other auditor and review a written 

description of how the other auditor 

determines its compliance with the 

independence and ethics requirements. 

The amendments require the lead 

auditor to (i) inform the other auditor of 

changes in circumstances of which the 

lead auditor becomes aware, and (ii) 

request that the other auditor update its 

affirmations and descriptions for 

changes in circumstances of which the 

other auditor becomes aware (including 

changes communicated by the lead 

auditor) and provide those documents 

to the lead auditor upon becoming 

aware of such changes.115 These 

amendments are meant to provide the 

lead auditor with information necessary 

for it to reevaluate compliance with 

independence and ethics 

requirements.116 Communications 

required by the amendments also reflect 

policies already adopted by a number of 

registered firms. 

The Board notes that the nature and 

extent of the lead auditor’s procedures 

for obtaining an understanding under 

paragraph .06Da will depend on the 

types of information available to the 

lead auditor about the other auditor. 

The following are examples of types of 

information that may be relevant to the 

lead auditor’s understanding of the 

other auditor’s knowledge of 

independence and ethics requirements, 

and the other auditor’s experience in 

applying the requirements: 

• The type, frequency, and substance 

of independence and ethics training that 

the other auditor provides to its 

personnel who participate in the audit; 

• The other auditor’s policies and 

procedures for ensuring that the firm 

and its personnel comply with 

independence and ethics requirements, 

including PCAOB Rule 3520, Auditor 

Independence; 117

• The other auditor’s process for 

determining that the other auditor, 

including the firm and its applicable 

personnel, does not have financial or 

employment relationships that might 

impair the lead auditor’s independence 

on the audit; 118

• The other auditor’s process for 

obtaining timely information about the 

audit client and its affiliates from which 

the other auditor firm is required to 

maintain independence, including an 

understanding of all non-audit services 

initiated or about to be initiated for the 

audit client by the other auditor; 119 and 

• Any business relationships between 

the other auditor (including the firm 

and its applicable personnel) and the 

audit client, or persons associated with 

the audit client in a decision-making 

capacity, such as officers, directors, or 

substantial stockholders.120

Sources of relevant information about 

the other auditor may differ depending, 

for example, on whether the lead 

auditor and other auditor are affiliated 

with the same network of accounting 

firms. In practice, some networks have 

procedures for sharing among select 

personnel of their member firms certain 

information about the results of internal 

or external inspections of the affiliates, 

conducted either by the network itself 

or by outside parties such as the 

PCAOB. 

Commenters on the 2021 SRC 

generally supported the modifications 

made to proposed AS 2101.06D, 

including the requirement to obtain 

written affirmations from the other 

auditor about whether the other 

auditor’s policies and procedures 

provide reasonable assurance of 

compliance with independence and 

ethics, and whether the other auditor is 

in compliance. However, some 

commenters asked the Board to modify 

the requirements for the written 

affirmation and noted that a firm’s 

quality control assessment with respect 

to independence is done on an annual 

basis. These commenters recommended 

that the Board align the amendments in 

this rulemaking with those of the 

PCAOB’s project regarding quality 

control standards.121 In the view of one 

of these commenters, it was not the 

Board’s intention to require the other 

auditor engagement team members to 

make their own conclusion about an 

aspect of their firm’s quality control 

system relative to a particular 

engagement. 

Even in circumstances when other 

auditor engagement team members rely 

on their firm’s quality control system for 

independence and ethics compliance, 

the Board believes it is appropriate to 

require the lead auditor to request and 

obtain in the context of an audit an 

affirmation that the other auditor’s firm 

has the necessary policies and 

procedures. In practice, audit 

engagement teams typically exchange 

information with their own firm’s 

quality control function relating to 

compliance with certain independence 

and ethics requirements. However, if an 

other auditor does not have policies and 

procedures that provide reasonable 

assurance that it complies with such 

requirements, it is appropriate to require 

that the lead auditor request and obtain 

a description of how the other auditor 

determines its compliance with the 

independence and ethics requirements. 

The Board believes that this 

requirement is appropriate today and 

will remain appropriate after firms 

implement the IAASB’s newly adopted 

International Standard on Quality 

Management 1 (‘‘ISQM 1’’), which will 

require firms that perform audits under 

IAASB standards to evaluate the 

effectiveness of its quality control 

system, or under PCAOB standards if 

the Board were to adopt a similar 

requirement.122


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123PCAOB Rule 3501, Definitions of Terms 

Employed in Section 3, Part 5 of the Rules, defines 

the terms ‘‘audit client’’ and ‘‘financial reporting 

oversight role.’’ The terms used in AS 2101.06Db(2) 

have the same meaning as defined in Rule 3501. 

124Rule 3526 requires auditors to make certain 

communications to the audit committee of the audit 

client before accepting an initial engagement, and 

annually thereafter, including a description, in 

writing, of ‘‘all relationships between the registered 

public accounting firm or any affiliates of the firm 

and the audit client or persons in financial 

reporting oversight roles at the audit client that, as 

of the date of the communication, may reasonably 

be thought to bear on independence.’’ See also Staff 

Guidance, Rule 3526(b) Communications with 

Audit Committees Concerning Independence (May 

31, 2019), which addresses questions that have 

arisen in practice regarding application of Rule 

3526(b) in certain circumstances. 

125See Ethics and Independence Rule 3526, 

Communication with Audit Committees Concerning 

Independence, PCAOB Release No. 2008–003 (Apr. 

22, 2008), at 5 note 4, which states that the Board 

‘‘expects the primary auditor’s report to either 

include any covered relationships of any secondary 

auditors not affiliated with the firm or state that it 

does not do so’’ (emphasis added). 126See AS 1205.10b. 

In addition, a couple of commenters 

suggested requiring that the lead auditor 

make the other auditor aware of PCAOB 

and SEC independence requirements 

that are relevant to the company. 

The requirement for the lead auditor 

to obtain an understanding (pursuant to 

paragraph .06Da) is designed to assist 

the lead auditor in determining its 

course of action regarding the other 

auditor’s independence and ethics 

compliance. For example, other auditors 

with less knowledge and experience 

may be less able to provide the 

information the lead auditor needs to 

determine compliance with 

independence and ethics requirements. 

The lead auditor may need to 

communicate PCAOB and SEC 

independence requirements to some 

other auditors (e.g., those who are less 

familiar with the requirements) but not 

to others (e.g., those who are more 

familiar with the requirements). The 

Board believes the amendments are 

sufficiently principles-based to allow 

the lead auditor to adjust its procedures 

according to the circumstances of the 

audit, including with respect to: 

• Making other auditors aware of the 

relevant independence and ethics 

requirements for the audit engagement, 

including affirming compliance not only 

with respect to their audit client, but 

also with respect to any affiliates of that 

audit client; 

• Confirming that the other auditors 

understand the requirements; and 

• Considering whether additional 

information for other auditors is 

necessary regarding the independence 

and ethics requirements that are 

relevant to the audit engagement. 

With respect to AS 2101.06Dc(1)–(2), 

one commenter stated that it is not 

necessary for other auditors to reaffirm 

in writing every update that is 

communicated by the lead auditor. The 

Board believes that an informative 

record of relevant matters is important 

for determining compliance with 

independence and ethics requirements. 

Auditor independence is critical for an 

effective audit; lack of independence 

can compromise the effectiveness of 

audit procedures performed by the other 

auditor. The amendments are designed 

to provide the lead auditor with timely 

information indicating that the other 

auditor’s independence may be 

compromised, thus enabling the lead 

auditor to take any necessary action 

during the course of the audit. 

Obtaining a Written Description of the 

Other Auditor’s Covered Relationships 

See Paragraph .06Db(2) of AS 2101 

Under the amendments, the lead 

auditor should obtain from the other 

auditor and review a written description 

of all relationships between the other 

auditor and the audit client or persons 

in financial reporting oversight roles at 

the audit client 123 that may reasonably 

be thought to bear on independence 

pursuant to the requirements of 

paragraph (b)(1) of PCAOB Rule 3526, 

Communication with Audit Committees 

Concerning Independence.124 The 

requirement is designed to assist the 

lead auditor in obtaining information for 

determining compliance with SEC and 

PCAOB independence requirements and 

to facilitate auditor communications to 

the audit committee under Rule 3526. 

The amendments do not change the 

applicability of Rule 3526 to the lead 

auditor’s representation, including with 

respect to unaffiliated firms.125

One commenter supported the 

proposed requirement, noting that 

PCAOB Rule 3526 requires 

communication only from the lead 

auditor to the audit committee. The 

commenter added that the proposed 

new requirement—with respect to the 

lead auditor determining an other 

auditor’s compliance with 

independence and ethics requirements 

rather than simply inquiring about it 

(e.g., under extant AS 1205)—aligns the 

responsibility to make such 

determination better with the required 

communication. 

No commenters opposed this 

requirement, and the Board adopted it 

as proposed. 

Obtaining a Written Affirmation About 

the Other Auditor’s Compliance With 

Independence and Ethics Requirements 

See Paragraph .06Db(3) of AS 2101 

Under the amendments, the lead 

auditor should obtain from the other 

auditor and review a written affirmation 

as to whether the other auditor is in 

compliance with independence and 

ethics requirements with respect to the 

audit client, and if it is not in 

compliance, the lead auditor should 

obtain and review a written description 

of the nature of the instances of noncompliance. This requirement was 

originally introduced in the 2016 

Proposal, to strengthen a requirement in 

AS 1205, which is being rescinded, to 

make inquiries concerning the other 

auditor’s independence.126 This 

provision was revised and clarified in 

the amendments proposed in the 2017 

and 2021 SRCs to require in addition 

that the lead auditor obtain and review 

a description of the nature of the 

instances of any non-compliance. 

One commenter on the 2021 SRC 

recommended that the Board modify the 

proposed requirement to also include 

the other auditor’s conclusion regarding 

whether it is capable of exercising 

objective and impartial judgment on all 

issues encompassed in its work. In 

response, the Board noted that the lead 

auditor can determine its course of 

action based on the facts and 

circumstances of the audit engagement, 

without the Board prescribing a course 

of action in the amendments. Therefore, 

the Board did not make additional 

changes to this requirement and 

adopted it as proposed. 

Following Up on Contrary Information 

See Paragraph .06F of AS 2101 

The amendments to AS 2101 direct 

the lead auditor to follow up on 

contrary information. The amendments 

provide that if the lead auditor becomes 

aware of information that contradicts 

the other auditor’s affirmation or 

description (including information 

about changed circumstances), the lead 

auditor should investigate the 

circumstances and consider the 

reliability of the affirmation or 

description. Further, if, after such 

investigation, or based on the other 

auditor’s affirmation or description, 

there are indications that the other 

auditor is not in compliance with 

independence and ethics requirements, 

the lead auditor should consider the 

implications for fulfilling its own 

responsibilities under AS 2101.06b and 

PCAOB Rules 3520 and 3526. 

Two commenters on the 2021 SRC 

expressed concerns with the words 

‘‘investigate’’ and ‘‘investigation’’ in the 

proposed amendments. The Board notes 

that the terms are used in other PCAOB 

auditing standards and generally refer to 


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127See, e.g., paragraphs .17, .20–.21 of AS 2305, 

Substantive Analytical Procedures (investigation 

and evaluation of significant differences from 

expectations about assertions related to the 

financial statements). 

128See also Section 102(a) of Sarbanes-Oxley, 15 

U.S.C. 7212(a). 

129An other auditor that is not registered with the 

PCAOB (regardless of whether such auditor is 

required to be registered with the PCAOB) is 

nonetheless subject to PCAOB authority when it 

acts as a person associated with a registered public 

accounting firm. See Section 2(a)(9) of SarbanesOxley, 15 U.S.C. 7201(a)(9)); PCAOB Rule 1001(p)(i) 

(defining ‘‘person associated with a public 

accounting firm’’); see also Sections 104(c)(1), 

105(b)(1), and 105(c)(4) of Sarbanes-Oxley, 15 

U.S.C. 7214(c)(1), 15 U.S.C. 7215(b)(1), and 15 

U.S.C. 7215(c)(4) (articulating that PCAOB authority 

extends to ‘‘persons associated with a registered 

public accounting firm’’ in connection with 

inspections, investigations, and sanctions, 

respectively). 

130See, e.g., In the Matter of WWC, P.C., PCAOB 

Release No. 105–2022–006 (Apr. 19, 2022); BDO 

Canada LLP (f/k/a BDO Dunwoody LLP), SEC AAER 

No. 3926 (Mar. 13, 2018); KPMG Inc., SEC AAER 

No. 3927 (Mar. 13, 2018). 

131See PCAOB Rule 1001(p)(ii). 

132For audits in which the lead auditor divides 

responsibility for the audit with the referred-to 

auditor see AS 1206.06c in this document. See also 

discussion below. 

133The written affirmation required by AS 

2101.06Hb regarding the other auditor’s engagement 

team members does not need to identify each 

member of the engagement team. 

134See, e.g., AS 1010, Training and Proficiency of 

the Independent Auditor, and paragraphs .11–.12 of 

QC 20, System of Quality Control for a CPA Firm’s 

Accounting and Auditing Practice. 

135See AS 2301.05a. 

136 ‘‘Principal auditor’’ is the term used in 

rescinded AS 1205. 

137See AS 1205.10. 

taking a closer look at a matter to 

determine a further course of action.127

After considering the comments, the 

Board adopted this requirement as 

proposed. 

Obtaining Information at the Individual 

or Firm Level 

See Note to Paragraph .06D of AS 2101 

The amendments include a note to AS 

2101.06D stating that information 

required to be provided to the lead 

auditor under AS 2101.06D may cover 

the other auditor’s firm and engagement 

team members who are partners, 

principals, shareholders, or employees 

of the other auditor firm. 

Some commenters on the proposing 

releases questioned the practicability of 

applying the requirements to individual 

engagement team members. Further, one 

commenter on the 2021 SRC specifically 

asked for clarification regarding the 

level (i.e., firm, individual, or both) at 

which the lead auditor is expected to 

apply the requirements in paragraph 

.06Da (obtaining an understanding of 

other auditors’ knowledge and 

experience) and how to interpret the 

proposed note to paragraph .06D. 

The definition of ‘‘other auditor’’ in 

the amended standards includes both an 

other auditor firm and individuals at 

that firm. The affirmations and 

descriptions required by the 

amendments could be prepared and 

provided by the other auditor firm and 

address all covered relationships. In our 

experience, firms typically have the 

necessary information available 

centrally, including information about 

processes for determining compliance 

with independence and ethics 

requirements, and about individuals at 

the firm, including their level of 

experience in applying the 

requirements. Obtaining from a firm a 

written affirmation or description that 

also encompasses relevant individuals 

at the firm would satisfy the 

requirement to obtain a written 

affirmation or description ‘‘from the 

other auditor’’ for those persons at that 

firm. 

PCAOB Registration Status of Other 

Auditors 

See Paragraph .06G of AS 2101 

PCAOB Rule 2100, Registration 

Requirements for Public Accounting 

Firms, requires a public accounting firm 

to be registered with the PCAOB128 if it: 

(a) prepares or issues any audit report 

with respect to any issuer, broker, or 

dealer or (b) plays a substantial role in 

the preparation or furnishing of an audit 

report with respect to any issuer, broker, 

or dealer.129 However, there have been 

examples of firms that played a 

substantial role but were not registered 

with the PCAOB.130

The amendments provide that the 

lead auditor may use the work of an 

other auditor that plays a substantial 

role on the audit 131 only if the other 

auditor is registered with the PCAOB.132

The provision is intended to promote 

compliance with Rule 2100 and thereby 

enhance audit quality, and it does not 

change the rule or the related definition 

of ‘‘play a substantial role’’ in Rule 

1001(p)(ii). Several commenters 

supported the provision, and the Board 

adopted it as proposed. 

With regard to registration 

requirements more broadly, one 

commenter suggested—as an alternative 

to requirements concerning 

independence and ethics, and 

concerning knowledge, skill, and 

ability—that the Board require all audit 

firms ‘‘engaged in a public entit[y] 

assurance engagement’’ to be registered 

with the PCAOB. In the commenter’s 

view, this approach would provide a 

‘‘basis for consistent application [of 

PCAOB standards] for firms registered 

with the PCAOB.’’ The Board is not 

taking the commenter’s suggestion 

because simply requiring firms to 

register (beyond the current registration 

requirements) would not address the 

need for change identified in this 

rulemaking. The shortcoming of this 

approach is demonstrated by the 

inspection deficiencies and enforcement 

cases described above, which involve 

conduct by registered firms during 

audits involving other auditors. 

Knowledge, Skill, and Ability of and 

Communications With Other Auditors 

See Paragraphs .06H and .16 of AS 2101 

Knowledge, Skill, and Ability of Other 

Auditors 

See Paragraphs .06Ha–b and .16 of AS 

2101 

The amendments require that, with 

respect to each other auditor, the lead 

auditor obtain an understanding of the 

knowledge, skill, and ability of the other 

auditor’s engagement team members 

who assist the lead auditor with 

planning or supervision, including 

their: experience in the industry in 

which the company operates; 

knowledge of the relevant financial 

reporting framework, PCAOB standards 

and rules, and SEC rules and 

regulations; and experience in applying 

the standards, rules, and regulations. 

The amendments also require the lead 

auditor to obtain a written affirmation 

from the other auditor that its 

engagement team members possess the 

knowledge, skill, and ability to perform 

their assigned tasks.133

PCAOB standards have long 

recognized the importance of technical 

training and proficiency of the 

personnel performing the audit.134

These matters are particularly important 

for senior engagement personnel 

because of their role in planning the 

audit, supervising the work of other 

engagement team members, and making 

important professional judgments. 

Under existing PCAOB standards, in 

situations where the lead auditor 

supervises an other auditor under AS 

1201, the knowledge, skill, and ability 

of engagement team members with 

significant engagement responsibilities 

should be commensurate with the 

assessed risks of material 

misstatement.135 In situations where the 

lead auditor uses the other auditor’s 

work and report under AS 1205, the 

lead auditor 136 is required under 

existing standards to make inquiries 

concerning the professional reputation 

of the other auditor.137


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138As discussed below, AS 2101.16 states that the 

auditor should determine whether specialized skill 

or knowledge is needed to perform appropriate risk 

assessments, plan or perform audit procedures, or 

evaluate audit results, and the amendments specify 

that such specialized skill or knowledge may 

include ‘‘relevant knowledge of foreign 

jurisdictions.’’ 

139See amended paragraph .16 of AS 2101, which 

provides that ‘‘[t]he auditor should determine 

whether specialized skill or knowledge, including 

relevant knowledge of foreign jurisdictions, is 

needed to perform appropriate risk assessments, 

plan or perform audit procedures, or evaluate audit 

results.’’ 

140See, e.g., AS 2110.49–.53 (describing 

discussions among key engagement team members 

regarding risks of material misstatement). 

141See, e.g., rescinded AS 1205.12. See also AS 

1215.18–.19. 

142See AS 2810.35. See also paragraphs .05–.17 

of AS 3105, Departures from Unqualified Opinions 

and Other Reporting Circumstances, which 

contains requirements regarding audit scope 

limitations. 

The amendments build on and 

strengthen the existing provisions. 

Compliance with these amendments is 

not limited to preliminary engagement 

activities and should be reevaluated 

with changes in circumstances. The 

amendments seek to apply a balanced 

and practical approach by focusing the 

lead auditor’s attention primarily on the 

knowledge, skill, and ability of the more 

senior engagement team members of the 

other auditor. 

Obtaining an understanding of the 

knowledge, skill, and ability of the other 

auditor’s supervisory personnel is 

important for determining the extent of 

the lead auditor’s supervision of the 

other auditor’s work. As a practical 

matter, the knowledge, skill, and ability 

of the supervisory personnel include 

their experience in the company’s 

industry and jurisdiction,138 and 

knowledge of the relevant financial 

reporting framework, PCAOB standards 

and rules, and SEC rules and 

regulations. Lack of appropriate 

knowledge, skill, and ability by the 

other auditor’s supervisory personnel 

can have an adverse effect on the overall 

quality of the audit. 

Several commenters supported the 

proposed requirements, including the 

requirement to obtain a written 

affirmation from the other auditor that 

its engagement team members possess 

the knowledge, skill, and ability to 

perform their assigned tasks. One 

commenter asked the Board to consider 

providing that the lead auditor’s 

procedures for obtaining an 

understanding of the knowledge, skill, 

and ability of the other auditor be 

scalable based on the considerations 

regarding sufficiency of participation in 

AS 2101.06A. The Board noted that the 

requirements in AS 2101.06A serve a 

different purpose: to increase the 

likelihood that the firm issuing the 

auditor’s report meaningfully 

participates in the audit. The 

requirements regarding the knowledge, 

skill, and ability are designed to focus 

the lead auditor and other auditors on 

assigning qualified personnel at all 

levels of the audit engagement. 

Another commenter suggested 

inserting a note after paragraph .06H 

that indicates the lead auditor’s own 

experience working with the other 

auditor is relevant to the lead auditor’s 

understanding of the other auditor’s 

knowledge, skill, and ability. The Board 

agrees with the commenter that the lead 

auditor’s own experience with the other 

auditor may be a source of information 

about the other auditor’s knowledge, 

skill, and ability. However, the 

amendments are designed to be 

principles-based to accommodate a 

variety of scenarios in practice, whereby 

differing types of information about 

other auditors can be available to the 

lead auditor. Therefore, beyond 

requiring the written affirmation 

described above, the amendments do 

not prescribe a particular set of 

procedures or sources of information for 

obtaining an understanding of the other 

auditor’s knowledge, skill, and ability. 

The amendments allow the lead auditor 

to determine the nature and extent of its 

procedures in this area. After 

considering the comments, the Board 

adopted the requirements as proposed. 

The amendments also add an 

explanatory phrase, ‘‘including relevant 

knowledge of foreign jurisdictions,’’ to 

AS 2101.16’s existing requirement that 

the auditor should determine whether 

specialized skill or knowledge is needed 

to perform appropriate risk assessments, 

plan or perform audit procedures, or 

evaluate audit results.139 Identifying 

whether there is a need for specialized 

skill or knowledge is logically a 

prerequisite to evaluating whether 

someone has that skill or knowledge. 

For example, a lead auditor in its home 

jurisdiction may not have a sufficient 

understanding of the business practices 

or legal requirements of a foreign 

jurisdiction to be able to execute the 

audit effectively. In these cases, the lead 

auditor may want to consider whether 

to engage an other auditor (e.g., from 

that jurisdiction) with relevant 

knowledge of the foreign jurisdiction to 

appropriately assess risk, plan or 

perform audit procedures, or evaluate 

audit results. 

One commenter on the 2021 SRC 

stated that, if added focus on knowledge 

of foreign jurisdictions is needed, 

additional clarity should be provided as 

to when this knowledge is needed and 

how it should be obtained. Another 

commenter stated that consideration of 

relevant knowledge of foreign 

jurisdictions may be applicable only in 

certain circumstances but acknowledged 

the possible need for specialized 

knowledge of foreign jurisdictions 

because of the other auditor’s 

knowledge of the regulatory 

environment. 

Similar to AS 2101.06Ha–b, the 

amendment in AS 2101.16 allows the 

auditor to determine the nature and 

extent of its procedures when 

determining whether specialized skill or 

knowledge is needed on the audit. After 

considering the comments, the Board 

adopted the amendment as proposed. 

Communication With Other Auditors 

See Paragraph .06Hc of AS 2101 

The amendments to AS 2101 require 

the lead auditor to determine, in 

connection with using the other 

auditor’s work, that it is able to 

communicate with the other auditor and 

gain access to the other auditor’s audit 

documentation. The requirement is 

intended to help the lead auditor in 

identifying and addressing any 

communication or access issues early in 

the audit. For example, the lead auditor 

would consider whether it can have 

meaningful two-way communication 

with the other auditor 140 and whether 

it needs to address any language 

differences. In another example, the 

lead auditor would consider whether it 

can access the other auditor’s 

documentation remotely. 

The amendment also is based on the 

existing provisions of PCAOB standards 

that require the lead auditor to have 

access to the other auditor’s 

documentation and obtain, review, and 

retain certain portions of it. As with the 

existing requirements, the amendments 

allow the lead auditor flexibility in 

determining the means of access (e.g., 

remotely or on-site).141

If the lead auditor cannot obtain 

sufficient appropriate audit evidence 

because of restrictions on 

communicating with the other auditor 

or accessing its documentation, a 

limitation on the scope of the audit may 

exist. Under PCAOB standards, these 

circumstances may require the lead 

auditor to qualify the audit opinion or 

disclaim an opinion.142

Those who commented on the 

proposed requirement in the 2016 

Proposal and 2017 SRC viewed it as a 

clear requirement. Some commenters 

asked for examples of acceptable modes 

of communication between the lead 

auditor and the other auditor, and 


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143See, e.g., AS 1215.19. 

144See AS 1215.06a. 

145See AS 1215.18, as amended. 

146See AS 1215.05a. 

147See discussion below. 

148 ‘‘Principal auditor’’ is the term used in AS 

1205. 

149For situations in which the lead auditor 

divides responsibility for the audit with another 

accounting firm, see AS 1206. For certain audits 

involving investments accounted for under the 

equity method of accounting whose financial 

statements are audited by other auditors, see 

proposed rule text for changes to Appendix B of AS 

1105. 

150See AS 1201.07–.15. 

151See AS 1201.04. 

152See AS 2810 regarding evaluating the 

sufficiency and appropriateness of audit evidence. 

153See AS 1201.07. 

154See AS 1201.06. 

inquired whether email communication 

would be acceptable. The Board notes 

that the form of communication 

between auditors (e.g., oral or written) 

depends on the circumstances of the 

audit and professional requirements 

(e.g., PCAOB standards require that 

certain communications between the 

lead auditor and other auditor be in 

writing 143). Although PCAOB standards 

do not prescribe a particular type of 

written communication (e.g., print or 

electronic), they require that audit 

documentation, in whatever form, 

contain sufficient information to enable 

an experienced auditor, having no 

previous connection with the 

engagement, to understand the nature, 

timing, extent, and results of the 

procedures performed, evidence 

obtained, and conclusions reached.144

In addition, the other auditor’s audit 

documentation must be accessible by 

the lead auditor.145 Further, audit 

documentation should demonstrate that 

the engagement complied with the 

standards of the PCAOB.146

Consistent with the above discussion, 

the Board adopted the amendment as 

proposed. 

Determining Locations or Business 

Units at Which Audit Procedures 

Should Be Performed 

See Paragraph .14 of AS 2101 

Other auditors are often involved in 

audits of companies with operations in 

multiple locations or business units 

(‘‘multi-location engagements’’). In these 

circumstances, existing AS 2101.11–.13 

address the determination of the 

locations at which audit procedures 

should be performed and the nature, 

timing, and extent of the audit 

procedures. Existing AS 2101.14 

provides that, in situations in which AS 

1205 applies, the auditor should 

perform the procedures in paragraphs 

.11–.13 to determine the locations or 

business units where audit procedures 

should be performed. 

In light of the rescission of AS 1205, 

the Board amended AS 2101.14 to 

specify that, in an audit involving other 

auditors or referred-to auditors, the lead 

auditor should perform the procedures 

set forth in AS 2101.11–.13 to determine 

the locations or business units at which 

audit procedures should be performed. 

The amendment to AS 2101.14, together 

with the amended supervisory 

requirements in AS 1201, is intended by 

the Board to require that the lead 

auditor play the central role in 

determining the scope of the audit. 

One commenter on the 2021 SRC 

recommended that the Board remove 

the requirements in proposed AS 

2101.14 with regard to referred-to 

auditors because these requirements are 

not consistent with the principles 

underlying dividing responsibility (i.e., 

the approach would diminish the line 

between assuming and dividing 

responsibility). The Board noted that the 

amendment to this paragraph is 

consistent with the relevant 

requirements in existing AS 2101.14 

applicable to audits that involve divided 

responsibility. For audits involving 

referred-to auditors, new AS 1206 

describes interactions, including 

communication of the lead auditor’s 

plan to divide responsibility, and other 

measures to assure the coordination of 

activities between the lead auditor and 

the referred-to auditor when dividing 

responsibility.147

After considering the comments, the 

Board adopted the amendment as 

proposed. 

Supervising Other Auditors 

Overview of the Supervisory Approach 

The Board’s amendments are 

intended to improve the quality of 

audits that involve other auditors for 

whose work the lead auditor assumes 

responsibility by requiring, among other 

things, that the lead auditor supervise 

the other auditors under AS 1201, as 

amended. 

Currently, the risk-based supervision 

approach described in AS 1201 does not 

apply to situations in which the lead 

auditor uses the work and reports of 

other auditors under AS 1205. AS 1205, 

which the Board rescinded, requires the 

lead auditor 148 to perform certain 

procedures, when using the work and 

reports of other auditors, that are more 

limited in scope than those required by 

the supervision standard, AS 1201. The 

amendments are designed to improve 

the lead auditor’s oversight of other 

auditors by applying AS 1201 to all 

audits involving other auditors for 

whose work the lead auditor assumes 

responsibility.149 The amendments also 

supplement the general supervisory 

requirements in AS 1201.05 by 

providing direction for applying these 

requirements in an audit involving other 

auditors.150

AS 1201 currently sets forth the 

general framework for supervision of 

engagement team members, including 

the nature and extent of supervisory 

activities. The standard allows the 

engagement partner to seek assistance in 

fulfilling his or her supervisory 

responsibilities from appropriate 

engagement team members, which 

includes team members from other firms 

involved in the audit.151 While AS 1201 

describes supervisory activities, it does 

not, however, describe supervisory 

procedures or assign them to a 

particular member, or members, of the 

engagement team. Further, the standard 

does not differentiate between the 

supervisory responsibilities of 

engagement team members at the lead 

auditor and at the other auditor. 

Under PCAOB standards, the audit 

firm that issues the audit report is 

responsible for making sure that 

sufficient appropriate audit evidence 

has been obtained, and appropriately 

evaluated, to support the opinion in the 

audit report.152 Because of the lead 

auditor’s central role in the audit, the 

amendments the Board adopted require 

that certain supervisory procedures be 

performed by the lead auditor. These 

procedures are designed to improve the 

effectiveness of the lead auditor’s 

supervision of the work of other 

auditors. 

The amendments also are designed to 

be scalable by applying the existing 

principles in AS 1201, which are 

already familiar to auditors. When 

designing and performing supervisory 

activities the lead auditor determines 

the extent of supervision of the other 

auditors’ work in accordance with 

paragraph .06 of AS 1201, which 

describes the factors to take into account 

when determining the extent of 

supervision necessary.153 For example, 

the extent of the lead auditor’s 

supervision of the other auditors’ work 

depends on, among other things, the 

risks of material misstatement to the 

company’s financial statements and the 

knowledge, skill, and ability of the other 

auditors.154

The lead auditor may determine that 

the necessary extent of supervision of 

the other auditor’s work under AS 1201 

entails performing supervisory 

procedures beyond those specified in 


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155See AS 1201.04. 

156See further discussion above. 

157See, e.g., note to AS 1201.08 and AS 1201.10 

(requiring the lead auditor to discuss with the other 

auditor any changes to its planned audit 

procedures), both of which were originally 

introduced in the 2016 Proposal. In addition, the 

amendments include a reference to paragraphs .49– 

.53 of AS 2110, Identifying and Assessing Risks of 

Material Misstatement (in a footnote to AS 1201.08) 

to remind the lead auditor of certain other required 

interactions with the other auditor. See discussion 

below. 

158See note to AS 1015.01 (‘‘For audits that 

involve other auditors, the other auditors are 

responsible for performing their work with due 

professional care.’’). 

159This amendment would not, of course, 

establish the sole responsibilities of other auditors. 

Like all auditors that participate in an audit 

performed under PCAOB standards, other auditors 

must comply with all applicable PCAOB standards. 

See, e.g., PCAOB Rule 3100, Compliance with 

Auditing and Related Professional Practice 

Standards. 

160See AS 1201.11, which is discussed below. 

161See AS 1215.18, which is discussed below. 

162To emphasize this point, the amendments add 

a footnote to AS 1015.01, referring to AS 2101 and 

AS 1201, which set forth the lead auditor’s 

responsibilities for planning and supervising the 

other auditor’s work. 

163See AS 1201.14. 

164The amendments also specify certain 

supervisory responsibilities in multi-tiered audits, 

as discussed below. 

165See AS 1201.05a. 

166According to AS 1205.12, the lead auditor (or 

‘‘principal auditor’’ in its terminology) should 

consider, among other things, reviewing the audit 

programs of the other auditor and issuing 

instructions to the other auditor as to the scope of 

audit work. 

167As discussed above, in multi-location 

engagements that involve other auditors, the lead 

auditor is required to determine locations or 

business units at which audit procedures should be 

performed. 

the amendments. For procedures not 

assigned to the lead auditor under the 

amendments, the lead auditor may seek 

assistance from qualified engagement 

team members (including those at the 

other auditor) in supervising the 

work.155 The approach to supervising 

other auditors under the amendments is 

consistent with, and takes into account, 

recent developments at some accounting 

firms that have been observed through 

the Board’s oversight activities.156

Many commenters on the 2021 SRC 

noted that communications between the 

lead auditor and other auditors are 

iterative throughout the audit. In 

addition, some commenters stated that 

it was not clear to them whether under 

the amendments in the 2021 SRC other 

auditors can provide input to the lead 

auditor on certain issues. 

The Board agrees with commenters 

that effective supervision by the lead 

auditor typically necessitates two-way 

communication with the other auditor. 

Similar to the amendments proposed in 

the 2021 SRC, the final amendments are 

designed to foster effective interaction 

by requiring the lead auditor to, as 

necessary, hold discussions with and 

obtain information from the other 

auditors to facilitate the performance of 

the supervisory procedures.157

The amendments to AS 1201 do not 

include the statement contained in 

rescinded AS 1205.03 that ‘‘the other 

auditor remains responsible for the 

performance of his own work and for 

his own report.’’ Nevertheless, the 

Board believes that supervision by the 

lead auditor does not relieve other 

auditors of their responsibilities, which 

include applying due professional care 

and complying with PCAOB standards. 

To reinforce this principle, the 

amendments add a statement to AS 

1015, that other auditors are responsible 

for performing their work with due 

professional care.158 This statement 

reminds other auditors of their 

responsibility to perform work in 

compliance with PCAOB rules and 

standards.159 Commenters were 

supportive of this added statement, 

noting that it was clear and appropriate. 

That responsibility is further 

emphasized by (i) an amendment 

requiring an affirmation from the other 

auditor about its compliance with the 

lead auditor’s instructions 160 and (ii) an 

amendment regarding audit 

documentation requirements.161 The 

overall responsibility for the audit 

under the amendments remains, 

however, with the lead auditor, as is the 

case under the existing standards.162

Supervisory Procedures To Be 

Performed by the Lead Auditor 

Under the amendments to AS 1201, 

the engagement partner remains 

responsible for the engagement and its 

performance. Accordingly, the 

engagement partner is responsible for 

proper supervision of the work of 

engagement team members, including 

the work of engagement team members 

outside the engagement partner’s firm. 

In fulfilling his or her supervisory 

responsibilities, the engagement partner 

may seek assistance from appropriate 

engagement team members, including 

engagement team members outside the 

engagement partner’s firm. Engagement 

team members who assist the 

engagement partner with supervision 

should exercise their supervisory 

responsibilities in accordance with AS 

1201. 

With respect to the lead auditor’s 

supervisory procedures in the 

amendments, other engagement team 

members who both: (1) are partners, 

principals, shareholders, or employees 

of the registered public accounting firm 

issuing the auditor’s report (or 

individuals who work under that firm’s 

direction and control and function as 

the firm’s employees); and (2) assist the 

engagement partner in fulfilling his or 

her planning or supervisory 

responsibilities on the audit pursuant to 

planning and supervision, are eligible to 

perform such procedures. In addition, in 

multi-tiered audits, the lead auditor may 

seek assistance from a first other auditor 

in performing the supervisory 

procedures in the amendments.163

To provide more specific direction for 

supervising the other auditors’ work, the 

amendments to AS 1201 establish 

requirements for the lead auditor in the 

following areas: 

• Informing other auditors of their 

responsibilities; 

• Obtaining and reviewing a 

description of the audit procedures to be 

performed by other auditors; 

• Obtaining and reviewing a written 

affirmation that other auditors 

performed their work in accordance 

with the lead auditor’s instructions; 

• Directing other auditors to provide 

specific documentation regarding their 

work; and 

• Determining whether other auditors 

have performed the work assigned to 

them, and whether additional evidence 

should be obtained. 

As noted in AS 1201.07, these 

requirements supplement the 

requirements in AS 1201.05. The 

requirements imposed by the 

amendments are described in new 

paragraphs AS 1201.08–.13 and 

discussed in more detail below.164

Informing Other Auditors of Their 

Responsibilities 

See Paragraph .08 of AS 1201 

AS 1201 currently requires that 

engagement team members be informed 

of their responsibilities, including the 

objectives and the nature, timing, and 

extent of the procedures to be 

performed, and other relevant 

matters.165 For audits performed in 

accordance with AS 1205, the standard 

does not include a specific requirement 

for the lead auditor to inform other 

auditors of their responsibilities.166

To promote effective supervision of 

other auditors’ work by the lead auditor, 

the amendments to AS 1201 specifically 

require the lead auditor to inform other 

auditors in writing of the following 

matters: 

• The scope of work to be performed 

by the other auditor (e.g., location or 

business unit 167 and the general type of 


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168See AS 2110.49–.53 (referenced in a footnote 

to AS 1201.08), which requires key engagement 

team members (including those in differing 

locations) to hold discussions regarding risks of 

material misstatement due to error or fraud, which 

inform the identification and assessment of risks. 

The Board has adopted an additional reference 

reminding auditors of the requirements in AS 

2110.59 regarding the auditor’s responsibility to 

identify and assess the risks of material 

misstatement at the (consolidated) financial 

statement level and the assertion level. 

169See AS 2105.08–.10 (referenced in a footnote 

to AS 1201.08), which describe determining the 

amount or amounts of tolerable misstatement, 

including for the individual locations or business 

units, where applicable. As noted above, it is 

common for audits using other auditors to take 

place in different locations, including different 

countries. 

170See AS 2810.10–.11 (referenced in a footnote 

to AS 1201.08), which require auditors to 

accumulate misstatements identified during the 

audit, other than those that are clearly trivial, and 

provide that auditors may designate an amount 

below which misstatements are trivial and do not 

need to be accumulated. The requirement in the 

amendments indicates that the lead auditor makes 

the determination of the clearly trivial threshold 

under AS 2810, if such a threshold is determined. 

171To align with similar language in AS 2101.11, 

the amendments have been revised from the 2021 

SRC in AS 1201.08b(1) to change ‘‘the identified 

risks ... that are applicable to the location or 

business unit’’ to ‘‘associated with the location or 

business unit.’’ 

172See AS 2110.49–53. 

173A note to AS 1201.08 provides that the lead 

auditor should, as necessary, hold discussions with 

and obtain information from the other auditor to 

facilitate the performance of procedures described 

in paragraph .08. 

174See AS 2110.49–.53. 

175See footnote 15 to AS 1201.08, citing AS 

2110.49–.53, which require key engagement team 

members (including those in differing locations) to 

hold discussions regarding risks of material 

misstatement due to error or fraud, which inform 

the identification and assessment of risks. 

176See footnote 15 to AS 1201.08. 

177See AS 2101.10. 

178See AS 1201.05a(2). 

179See rescinded AS 1205.12. 

180See AS 1201.09. 

work to be performed, which could 

range from a few specified audit 

procedures to a standalone audit); and 

• With respect to the work requested 

to be performed: the identified risks of 

material misstatement,168 tolerable 

misstatement,169 and the amount (if 

determined) below which misstatements 

are clearly trivial and do not need to be 

accumulated.170

Some commenters on the 2016 

Proposal and the 2017 SRC interpreted 

the proposed amendments as requiring 

the lead auditor to communicate to 

other auditors all the risks of material 

misstatement for the location or 

business unit, or even all identified 

risks of material misstatement to the 

consolidated financial statements. Some 

of those commenters (some of whom 

also commented on the 2021 SRC) 

recommended that the lead auditor be 

required to communicate only the 

significant risks or only risks that are 

relevant to the other auditors’ work. 

Some commenters agreed that the 

communication by the lead auditor to 

the other auditor about the scope of 

work, identified risks of material 

misstatement, and the amount (if 

determined) below which misstatements 

are clearly trivial and do not need to be 

accumulated, should be in writing. 

In the 2021 SRC, the Board agreed 

with commenters who stated that the 

lead auditor should communicate to 

other auditors those risks to the 

consolidated financial statements that 

are relevant to the other auditors’ work. 

The Board therefore included in AS 

1201.08b in the 2021 SRC the qualifying 

phrases ‘‘[w]ith respect to the work 

requested to be performed’’ and ‘‘to the 

consolidated financial statements that 

are associated with the location or 

business unit.’’ 171 These phrases remain 

in the final amendments. The 

amendments do not limit the lead 

auditor’s communication to significant 

risks (as some commenters suggested) 

because doing so could lead to 

inadequate testing of significant 

accounts and disclosures where a 

reasonable possibility of material 

misstatement to the financial statements 

exists. 

Some commenters on the proposing 

releases also questioned whether the 

lead auditor is always best suited to 

assess risks of material misstatement at 

locations or business units audited by 

other auditors. Further, a couple of 

commenters to the 2021 SRC 

recommended that the amendments not 

require the lead auditor to communicate 

identified risks of material 

misstatements that are applicable to the 

location or business unit. Instead, the 

commenters recommended a 

requirement that focuses the lead 

auditor on communicating identified 

risks to the consolidated financial 

statements and matters that would assist 

the other auditor in developing a more 

granular view of risks specific to the 

location or business unit. 

Although requiring the lead auditor to 

communicate to the other auditor the 

relevant risks of material misstatement 

to the company’s financial statements is 

consistent with the lead auditor’s 

responsibilities under PCAOB 

standards, existing PCAOB standards 

also recognize that additional risks of 

material misstatement to the company’s 

financial statements may be identified 

by other auditors, who could be more 

familiar than the lead auditor with a 

particular location or business unit 

where such risks may originate.172

The Board agrees with commenters 

that input from other auditors may be 

necessary in identifying and assessing 

risks of material misstatement to the 

company’s financial statements and 

developing an audit response. The 

amendments are designed to foster 

effective two-way communication by 

requiring the lead auditor to, as 

necessary, hold discussions with and 

obtain information from other auditors 

to facilitate the performance of the 

supervisory procedures.173 Notably, all 

key engagement team members, 

including those at the other auditor 

firms, are already required under 

existing standards to discuss the 

susceptibility of the company’s financial 

statements to material misstatement due 

to error or fraud, as part of performing 

the risk assessment procedures.174 A 

reminder about these requirements is 

included in a footnote to AS 1201.08.175

The Board also agrees with 

commenters that under the existing 

requirements the lead auditor identifies 

and assesses the risk of material 

misstatement at the level of the 

company’s (consolidated) financial 

statements. An additional reference was 

added to the amendments reminding 

lead auditors of the existing 

requirements of AS 2110.59 to identify 

and assess the risks of material 

misstatement at the financial statement 

level and assertion level.176

Obtaining and Reviewing a Written 

Description of the Audit Procedures To 

Be Performed by the Other Auditors 

See Paragraphs .09 and .10 of AS 1201 

Existing PCAOB standards require 

that the auditor develop and document 

an audit plan that includes a description 

of, among other things, the planned 

nature, timing, and extent of the risk 

assessment procedures, tests of controls, 

and substantive procedures.177 In 

addition, pursuant to AS 1201, the 

auditor is required to inform 

engagement team members of their 

responsibilities, including the nature, 

timing, and extent of procedures they 

are to perform.178 In situations governed 

by AS 1205, the lead auditor is required 

to consider reviewing the audit 

programs of the other auditor.179

Similar to the proposed amendments 

in the 2021 SRC, the final amendments 

to AS 1201 require the lead auditor to 

obtain and review the other auditor’s 

written description of audit procedures 

to be performed,180 determine whether 

any changes to the other auditor’s 

planned audit procedures are necessary, 

and if so, discuss the changes with, and 

communicate them in writing to, the 


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181See AS 1201.10. 

182See note to AS 1201.09. 

183See AS 1215.04 (audit documentation may be 

in the form of paper, electronic files, or other 

media). 

184See, e.g., AS 1201.13 (requiring the lead 

auditor to make certain determinations based on a 

review of the documentation provided by the other 

auditor, discussions with the other auditor, and 

other information obtained by the lead auditor). 

185See, e.g., AS 1215.06 and AS 1215.18 as 

amended. 

other auditor.181 Under these 

amendments, the lead auditor is 

required to inform the other auditor of 

the level of detail needed in the other 

auditor’s written description of audit 

procedures to be performed, based on 

the necessary extent of the lead 

auditor’s supervision. 

The amendments are intended to 

promote proper supervision of the other 

auditor’s work by the lead auditor and 

proper coordination of work performed 

by the lead and other auditor. 

Importantly, the amendments are 

designed to accommodate different 

scenarios encountered in practice. For 

example, the other auditor who is more 

familiar than the lead auditor with a 

location or business unit may be better 

positioned to design detailed audit 

procedures for that part of the audit 

(which procedures would then be 

subject to the lead auditor’s review and 

approval). Conversely, an other auditor 

who lacks experience in addressing 

certain risks may not be best suited to 

plan the work or to design detailed 

audit procedures in that area. The 

amendments provide that as the 

necessary extent of supervision 

increases, the lead auditor, rather than 

the other auditor, may need to 

determine the nature, timing, and extent 

of procedures to be performed by the 

other auditor.182

Many commenters on the 2021 SRC 

recommended that these requirements 

for the lead auditor be more principlesbased to better accommodate an 

iterative process of communication 

between the lead auditor and other 

auditors, and the use of communication 

technology. For example, some 

commenters indicated that planned 

audit procedures and related changes 

could be communicated through video 

conferencing and screen sharing instead 

of in writing. These commenters 

encouraged the Board to revise AS 

1201.09 and .10 to make them more 

principles-based and to reflect the 

recent technological innovations in 

communication. A couple of 

commenters went further and 

recommended removing from the 

amendments the requirement to 

‘‘obtain’’ the information. A couple of 

other commenters either recommended 

that the Board allow the lead auditor to 

apply judgment in determining what 

changes should be communicated in 

writing to the other auditor based on the 

lead auditor’s extent of supervision of 

the other auditor, or stated that the 

requirement could cause an other 

auditor that is not a member of the lead 

auditor’s network to be concerned about 

the confidentiality of its audit 

methodology. 

In its oversight activities, the PCAOB 

has seen challenges in the coordination 

and communication between lead 

auditors and other auditors, particularly 

in coordinating their responsibilities for 

the planning and performance of audit 

procedures. Requiring that certain 

communications be in writing facilitates 

the supervision of the engagement by 

reducing the risk of miscommunication 

and lack of clarity about 

responsibilities. 

The terms ‘‘obtain’’ and ‘‘in writing’’ 

do not mandate that auditor working 

papers be paper-based.183 The Board 

believes that technological advances in 

communication including those 

discussed by commenters could 

improve the effectiveness and efficiency 

of the lead auditor’s supervision of other 

auditors, and the Board noted that the 

amendments would not hamper the 

implementation of novel means of 

communication, including 

documentation and review. 

For example, a lead auditor could 

meet with other auditors through video 

conferencing and could view and 

discuss documents that are shared by 

video screen. The lead auditor could 

also obtain documents by (i) receiving 

them via electronic mail or by 

downloading them via an electronic 

portal and could store them 

electronically or (ii) accessing the other 

auditor’s electronic working papers 

remotely. In any case, audit 

documentation supporting the lead 

auditor’s conclusions will need to 

contain a record that the lead auditor 

fulfilled its responsibilities under 

PCAOB standards, including reviewing 

the relevant documents and meeting the 

requirements of other provisions and of 

other standards regarding matters such 

as determinations related to other 

auditors’ work 184 and audit 

documentation.185

As with paper-based documentation 

of the work of other auditors, the 

necessary level of detail of the other 

auditors’ electronic documentation that 

is required to be requested, obtained, 

and reviewed by the lead auditor and 

the lead auditor’s communication to the 

other auditors under the amendments 

will depend on the necessary extent of 

supervision of the other auditors’ work 

by the lead auditor. 

Separately, requiring the lead auditor 

to obtain a written description of audit 

procedures to be performed from the 

other auditor and communicate changes 

in writing to the other auditor not only 

allows the Board to fulfill its mandates 

of inspecting and potentially 

investigating the lead auditor’s oversight 

of the other auditor’s work but it is also 

important for an audit firm’s audit 

quality reviews such as engagement 

quality reviews and internal 

inspections. For the reasons discussed 

above, the Board adopted these 

requirements as proposed. 

Obtaining and Reviewing the Other 

Auditor’s Written Affirmation Regarding 

Work Performed 

See Paragraph .11 of AS 1201 

As was proposed in the 2021 SRC, 

under the amendments the lead auditor 

is required to obtain and review a 

written affirmation as to whether the 

other auditor performed work in 

accordance with the instructions 

provided, as described in paragraphs AS 

1201.08–.10, including the other 

auditor’s use of applicable PCAOB 

standards in performing that work. If the 

other auditor has not performed the 

work in accordance with the 

instructions provided, the lead auditor 

is required to obtain and review a 

description of the nature of, and 

explanation of the reasons for, the 

instances where the work was not 

performed in accordance with the 

instructions, including (if applicable) a 

description of the alternative work 

performed. 

This requirement is designed to 

provide information to the lead auditor 

about whether the other auditor 

performed work in accordance with the 

lead auditor’s instructions, to inform the 

lead auditor of audit areas that may 

require additional attention, and to 

emphasize the other auditor’s 

responsibility for properly planning and 

performing its work in compliance with 

PCAOB standards. It is also consistent 

with the existing practice of affirming in 

writing an other auditor’s compliance 

with the lead auditor’s instructions (e.g., 

in an ‘‘interoffice memorandum’’) at 

some audit firms. AS 1201.11 does not 

duplicate a requirement in AS 1215.19 

for the lead auditor to obtain, review, 

and retain certain documents relating to 

the other auditor’s work. 

Commenters on the 2021 SRC 

supported the written affirmation in AS 

1201.11 as they believed it was a 


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186See, e.g., AS 1201.05c. 

187See, e.g., AS 1215.19 and rescinded AS 

1205.12. 

188See AS 2810.35. See also paragraphs .05–.15 

of AS 3105, Departures from Unqualified Opinions 

and Other Reporting Circumstances. 

189See also AS1215.A65. 

190See AS 1201.05c. Additionally, AS 1201.05b 

requires the engagement partner or other 

supervisors to direct engagement team members to 

bring significant accounting and auditing issues to 

their attention so they can evaluate those issues and 

determine that appropriate actions are taken in 

accordance with PCAOB standards. That 

requirement also applies in the supervision of other 

auditors. 

necessary requirement, and the Board 

adopted it as proposed. 

Directing the Other Auditors To Provide 

Specific Documentation 

See Paragraph .12 of AS 1201 

Supervision under existing PCAOB 

standards necessarily involves review of 

audit documentation.186 For example, 

under AS 1201, the engagement partner 

and other engagement team members 

performing supervisory activities should 

review the work of engagement team 

members to evaluate whether the work 

was performed and documented. (AS 

1201 does not specify the documents to 

be reviewed.) In addition, for audits 

involving other auditors, other PCAOB 

standards describe certain 

documentation of the other auditor’s 

work that the lead auditor must obtain, 

review, and retain prior to the report 

release date.187

As the Board proposed in the 2021 

SRC, the amendments supplement the 

existing standards by requiring the lead 

auditor to direct the other auditor to 

provide for the lead auditor’s review 

specified documentation with respect to 

the work of the other auditor. This 

requirement is designed so that the lead 

auditor obtains information about the 

other auditor’s work that is necessary 

for the lead auditor to carry out its 

supervisory responsibilities and that 

supports the lead auditor’s obligation to 

obtain sufficient appropriate audit 

evidence to provide a reasonable basis 

for its opinion. 

The amendments also state that the 

documentation requested by the lead 

auditor from the other auditor depends 

on the necessary extent of supervision 

of the other auditor’s work by the lead 

auditor (which is based on a number of 

factors, including risk). Thus, under the 

amendments, review of additional 

documentation (i.e., beyond the items 

listed in AS 1215.19) could be necessary 

to satisfy the lead auditor’s supervisory 

responsibilities, for example, for work 

performed by less experienced other 

auditors, procedures in areas with 

heightened risks of material 

misstatement (including the other 

auditors’ testing of controls that address 

the risks), or procedures to resolve 

significant issues arising during the 

audit. In directing the other auditor, the 

lead auditor could, for example, specify 

individual documents, types of 

documents, or documentation for audit 

areas that it intends to review. 

One commenter generally supported 

the changes to proposed AS 1201.12 in 

the 2021 SRC that acknowledge the lead 

auditor’s use of a risk-based approach in 

determining the documentation to 

review in performing its supervisory 

responsibilities. Another commenter 

recommended that the amendments 

clarify that determining the necessary 

incremental documentation for the lead 

auditor to review (in addition to 

documents described in PCAOB 

standards) should be based on the facts 

and circumstances of an audit 

engagement. Another commenter on the 

2021 SRC stated that privacy laws in 

certain jurisdictions may create 

obstacles for the transfer of 

documentation from the other auditor’s 

country to the lead auditor’s country. 

And another recommended clarifying 

that not all the documentation described 

in AS 1215.19 may be applicable in 

some situations. For example, in 

situations where the other auditor’s 

involvement consists of only performing 

certain limited procedures (e.g., 

observing a company’s physical 

inventory), certain documents in AS 

1215.19 would not be applicable. 

The Board considered these 

comments and determined that the 

requirements as proposed were 

sufficiently clear. The Board therefore 

adopted the requirements as proposed. 

As noted previously, the amendments 

specifically state that the documentation 

requested by the lead auditor from the 

other auditor will be based on the 

necessary extent of supervision of the 

other auditor’s work by the lead auditor 

(which depends on a number of factors, 

including risks of material misstatement 

and the knowledge, skill, and ability of 

the other auditor). 

Additionally, with regard to privacy 

laws and potential challenges to 

accessing working papers, if effective 

methods of remote access to the working 

papers are available to the lead auditor, 

the amendments do not preclude the 

use of such methods. However, as is the 

case under the existing requirements, 

engagement team members from the 

lead auditor may need to travel to the 

country where the working papers are 

located to access the working papers 

and perform their review. The 

amendments do not change the existing 

requirement in AS 1215.19 for 

obtaining, reviewing, and retaining 

certain documentation related to the 

other auditor’s work by the office of the 

firm issuing the auditor’s report. If the 

lead auditor cannot obtain sufficient 

appropriate audit evidence, a limitation 

on the scope of the audit may exist. This 

may require the engagement partner to 

qualify the audit opinion or disclaim an 

opinion.188

Finally, the Board agrees with the 

commenter that in situations in which 

the other auditor only performs select 

procedures for the lead auditor, such as 

observing physical inventories, the lead 

auditor is not required to obtain all of 

the documents described in AS 1215.19, 

because those documents would not be 

applicable to the limited type of work 

performed by the other auditor. 

However, this does not reduce the need 

for the lead auditor to obtain 

documentation prepared by the other 

auditor that is sufficient to fulfill its 

supervisory responsibilities under AS 

1201.189

Determining Whether the Other Auditor 

Has Performed the Work, and Whether 

Additional Evidence Should Be 

Obtained 

See Paragraph .13 of AS 1201 

Under the general supervisory 

requirements of AS 1201, the 

engagement partner and his or her 

assistants should review the work of 

engagement team members to evaluate 

whether: (i) the work was performed 

and documented; (ii) the objectives of 

the procedures were achieved; and (iii) 

the results of the work support the 

conclusions reached.190 In the scenarios 

that are governed by rescinded AS 1205, 

the lead auditor should consider 

performing one or more specified 

procedures in addition to obtaining, 

reviewing, and retaining certain 

documentation of the other auditor’s 

work. 

Under the amendments, AS 1201.13 

provides that the lead auditor should 

determine, based on a review of the 

documentation provided by the other 

auditor, discussions with the other 

auditor, and other information obtained 

by the lead auditor during the audit: (i) 

whether the other auditor performed the 

work in accordance with the lead 

auditor’s instructions, including the use 

of applicable PCAOB standards; and (ii) 

whether additional audit evidence 

should be obtained by the lead auditor 

or other auditors. Notably, the 

amendments do not require that in all 

cases the lead auditor review all the 


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191See AS 1201.13. See also AS 2810.35 and .36 

(which are referenced in a footnote to AS 1201.13b), 

requiring the auditor, among other things, to obtain 

further audit evidence if sufficient appropriate 

audit evidence has not been obtained. 

192See footnote 19 to AS 1201.14. 

193AS 1201.14. 

194The commenter provided the rationale that a 

multi-tiered audit may exist even if the first other 

auditor does not assist the lead auditor in 

supervising the work of a second other auditor. 

195See AS 1201.14. 

196See AS 1201.14. 

197See also discussion below. 

198See AS 1201.15. 

documentation of the other auditor’s 

work to determine whether the work has 

been performed. Rather, the lead 

auditor’s determination should be based 

on the review of documents it requested 

from the other auditor under the 

amendments, discussions with the other 

auditors, and other information 

obtained during the audit. 

The requirement to determine the 

need for additional evidence is intended 

to address circumstances that may be 

encountered in practice, including 

where the other auditors did not 

perform the procedures as instructed, or 

where sufficient appropriate audit 

evidence was not obtained. In those 

situations, the lead auditor would need 

to determine the appropriate next steps. 

For example, the lead auditor could 

determine that it is necessary for the 

lead auditor or the other auditor to 

perform additional audit procedures to 

address a previously unidentified risk of 

material misstatement or to obtain 

further audit evidence with respect to 

one or more locations or business 

units.191

Commenters did not oppose or 

suggest modifications to the proposed 

requirements in AS 1201.13, and the 

Board adopted them as proposed. 

Multi-Tiered Audits 

See Paragraphs .14–.15 of AS 1201 and 

Paragraphs .06Ac, .06E, and .06I of AS 

2101 

Supervisory Procedures in Multi-Tiered 

Audits—Directing a First Other Auditor 

For various reasons, some engagement 

teams could involve multiple tiers of 

other auditors. Such ‘‘multi-tiered’’ 

audits are not expressly addressed in 

the existing standards. 

In addition to describing multi-tiered 

audits, the amendments clarify that in 

multi-tiered audits the lead auditor may 

seek assistance from an other auditor (a 

‘‘first other auditor’’) in fulfilling certain 

planning and supervisory 

responsibilities of the lead auditor with 

respect to one or more second other 

auditors (i.e., procedures in paragraphs 

.08–.13 of AS 1201). Multi-tiered audits 

are described in the standard as those in 

which the engagement team is organized 

in a multi-tiered structure, e.g., whereby 

an other auditor assists the lead auditor 

in supervising a second other auditor or 

multiple second other auditors. 192

Under the amendments, the lead 

auditor determines whether to seek 

assistance from a first other auditor in 

supervising one or more second other 

auditors, pursuant to factors in AS 

1201.06.193 Notably, however, the lead 

auditor is responsible for the 

supervision of the entire audit, 

including the supervision of all other 

auditors. 

For example, a multi-tiered audit of a 

U.S. multinational corporation that 

consolidates the results of its European 

operations in the U.K. could include the 

following structure: 

• A U.S. firm as lead auditor; 

• A U.K. firm as first other auditor, 

auditing the European operations; and 

• A German firm as a second other 

auditor, auditing a business unit in 

Germany that is consolidated into, and 

is a significant portion of, the European 

operations. 

In this example, under the 

amendments, the lead auditor could 

seek assistance from the U.K. firm in 

supervising the work of the second 

other auditor in Germany. In a more 

complex structure, the lead auditor 

could seek assistance from a first other 

auditor in supervising the work of 

multiple second other auditors. 

The lead auditor’s determination of 

whether it would be appropriate for the 

first other auditor to perform 

supervisory procedures with respect to 

the second other auditor should be 

based on the factors for determining the 

extent of supervision in AS 1201.06. 

The lead auditor’s use of a first other 

auditor is entirely within the lead 

auditor’s discretion. The lead auditor 

could decide not to seek assistance from 

the first other auditor in supervising the 

work of second other auditors where, for 

example, the first other auditor’s 

knowledge of a particular industry, 

particular accounting or auditing area, 

or PCAOB rules and standards is 

insufficient to effectively review the 

work of the second other auditors. 

A commenter on the 2021 SRC 

asserted that the description of multitiered audits as proposed in footnote 19 

to AS 1201.14 does not provide 

sufficient context for circumstances that 

might give rise to multi-tiered audits. 

The commenter suggested an alternative 

description that would be based on the 

financial reporting structure of an 

entity, which the commenter viewed as 

more important to defining the concept 

of a multi-tiered audit than the audit 

structure.194 Having considered the 

comment, the Board decided to adopt 

the amendments as proposed in the 

2021 SRC. The description of multitiered audits in the amendments and the 

related requirements are discussed in 

the context of existing auditor 

responsibilities, to illustrate how the 

existing responsibilities apply when an 

audit includes one or more supervisory 

tiers. 

Another commenter recommended 

that the description of multi-tiered 

audits be moved to the definitions 

section in Appendix A of AS 2101. The 

Board has decided not to relocate the 

description of ‘‘multi-tiered audits’’ to 

Appendix A of AS 2101, as it is not 

intended to be a defined term in the 

standards, but rather a description of a 

current practice. 

Supervisory Procedures in Multi-Tiered 

Audits—Evaluating a First Other 

Auditor’s Supervision of a Second Other 

Auditor’s Work 

Under the amendments, the lead 

auditor is responsible for the 

supervision of the entire audit, 

including the supervision of all the 

other auditors’ work. If a first other 

auditor performs supervisory 

procedures with respect to a second 

other auditor, the lead auditor is 

required to evaluate the first other 

auditor’s supervision of the second 

other auditor’s work.195 If the first other 

auditor assists the lead auditor with 

performing the supervisory procedures 

described in AS 1201.14, the lead 

auditor is required to obtain, review, 

and retain documentation identifying 

the scope of work to be performed by 

the second other auditor.196 The 

requirements for the supervision of the 

other auditor’s work in a multi-tiered 

audit also apply to audits in which there 

are multiple second other auditors.197

Under the amendments, the lead 

auditor will consider the first other 

auditor’s review of the second other 

auditor’s work, and apply the provisions 

of AS 1201.06, including taking into 

account the knowledge, skill, and ability 

of the first other auditor, when 

determining the necessary extent of its 

review (if any) of the second other 

auditor’s work.198 For example, the lead 

auditor could determine it needs to be 

less involved in supervising the second 

other auditor (including reviewing the 

second other auditor’s work) if the first 

other auditor has adequate experience 

in areas audited by the second other 

auditor and maintains documentation 

sufficient to understand the supervisory 


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199See discussion below. 

200See note to AS 1201.14. 201See AS 2101.06Ac. 

procedures performed with respect to 

the second other auditor, and if no 

unexpected issues arise during the 

audit. 

For purposes of the lead auditor’s 

compliance with AS 1215.19 with 

respect to work performed by a second 

other auditor, the lead auditor may 

request that the first other auditor both 

(i) obtain, review, and retain the audit 

documentation described in AS 1215.19 

related to the second other auditor’s 

work (including the second other 

auditor’s supervision of the work of 

further tiers of other auditors 199) and 

(ii) incorporate the information in that 

documentation in the first other 

auditor’s documentation that it provides 

to the lead auditor pursuant to AS 

1215.19.200 In other words, the 

amendments would not require the first 

other auditor to provide to the lead 

auditor multiple sets of the same type of 

documentation; for example, the first 

other auditor could submit to the lead 

auditor one schedule that incorporates 

misstatements identified during the 

audit by the first other auditor and the 

second other auditor(s). 

One commenter on the 2021 SRC 

supported the requirements and stated 

that they provided the right approach to 

multi-tiered audits. Another commenter 

indicated that the lead auditor should 

be able to place greater reliance on a 

first other auditor than the proposed 

requirements allowed, including relying 

on the first other auditor to determine 

the extent of supervision of second 

other auditors. In addition, this 

commenter stated that it disagreed with 

the requirement that the lead auditor 

should obtain and review 

documentation that identifies the scope 

of work for each location or business 

unit in a multi-tiered audit, although it 

agreed that the lead auditor needed such 

information in order to consider 

whether (and if so, the extent to which) 

it should be involved in the work of the 

second other auditor. 

With regard to the comment that the 

lead auditor should be able to place 

greater reliance on a first other auditor, 

including relying on the first other 

auditor to determine the extent of 

supervision of second other auditors, 

the aim of this rulemaking is to increase 

the lead auditor’s involvement in and 

evaluation of the other auditors’ work. 

This includes the lead auditor’s 

supervision of the work of second other 

auditors in multi-tiered audit scenarios. 

Allowing the lead auditor to simply rely 

on the first other auditor’s supervision 

of a second other auditor, as 

recommended by the commenter, would 

not be consistent with this goal. As 

stated above, under the amendments, 

the lead auditor determines its extent of 

supervision of the second other 

auditor’s work in accordance with the 

factors in paragraph AS 1201.06. 

With regard to the comment that the 

lead auditor should not have to obtain 

and review documentation that 

identifies the scope of work for each 

location or business unit in a multitiered audit, the Board continues to 

believe that obtaining and reviewing 

such documentation is critical for 

informing the lead auditor’s supervision 

of the other auditors’ work. Supervision 

of the engagement, including the work 

of second other auditors, is the lead 

auditor’s responsibility, and the lead 

auditor’s knowledge of the scope of the 

work of second other auditors is 

necessary to effectively discharge that 

responsibility. 

One commenter on the 2021 SRC 

expressed concerns about how the 

requirement to evaluate a first other 

auditor’s supervision of a second other 

auditor would be operationalized, in 

particular what information would be 

taken into account in making the 

evaluation. This commenter 

recommended that requiring an up-front 

discussion between the lead auditor and 

the first other auditor about how second 

other auditors will be used and 

supervised would be more beneficial to 

audit quality. This commenter also 

stated that because it may not always be 

possible to observe the nature and 

extent of the review performed by the 

first other auditor, the standard should 

require the lead auditor to obtain a 

written affirmation from the first other 

auditor that the second other auditor 

has been supervised as agreed with the 

lead auditor (similar to the requirement 

in AS 1201.11). 

When evaluating the first other 

auditor’s supervision of the second 

other auditor’s work, the lead auditor 

would not, in normal circumstances, be 

expected to reperform the first other 

auditor’s supervisory procedures. 

Instead, the lead auditor would evaluate 

whether the first other auditor properly 

performed the assigned supervisory 

procedures with respect to the second 

other auditor, coordinated its work with 

the second other auditor, and resolved 

significant matters arising during the 

audit. The lead auditor’s evaluation may 

include holding discussions with the 

first other auditor and reviewing the 

first and second other auditors’ audit 

plans, written reports, or other 

documentation. Overall, the extent of 

the lead auditor’s evaluation of the first 

other auditor’s supervision depends on 

the nature of the work performed by the 

second other auditor, the results of the 

work, and the necessary extent of the 

lead auditor’s supervision of the first 

other auditor’s work. 

The Board does not agree with the 

recommendation that the lead auditor 

obtain a written affirmation from the 

first other auditor that the second other 

auditor has been supervised as agreed 

with the lead auditor. Under the 

amendments, the lead auditor is 

responsible for supervision of the entire 

engagement, including supervision of 

the first other auditor’s supervision of 

second other auditors. An affirmation, 

by itself, may not provide information 

that is sufficient to discharge this 

responsibility. In some circumstances, 

for example, where the risks of material 

misstatements are higher, the lead 

auditor would need to evaluate more 

information than an affirmation to fulfill 

its responsibility to supervise the entire 

engagement, including the involvement 

of other auditors, to a necessary extent 

under PCAOB standards. Having 

considered the comments, the Board 

adopted the amendments as proposed in 

the 2021 SRC. 

Audit Planning in Multi-Tiered 

Audits—Serving as Lead Auditor and 

Seeking Assistance From a First Other 

Auditor Related to a Second Other 

Auditor’s Qualifications 

As discussed in more detail above, the 

amendments include a third 

consideration for determining whether 

the participation of an engagement 

partner’s firm is sufficient for the firm 

to carry out the responsibilities of a lead 

auditor and to report as such on the 

company’s financial statements.201 This 

third consideration pertains to the 

extent of the engagement partner’s 

firm’s supervision of other auditors’ 

work for portions of the company’s 

financial statements for which the other 

auditors perform audit procedures. With 

regard to multi-tiered audits, this 

consideration applies only to the 

engagement partner’s firm’s direct 

supervision of other auditors, and not to 

any supervisory assistance that the firm 

might receive from a first other auditor 

in a multi-tiered audit. 

Some commenters indicated that with 

respect to determining the sufficiency of 

participation of the lead auditor, the 

amendments regarding supervisory 

assistance from other auditors in a 

multi-tiered audit are clear and 

appropriate. There were no comments 

opposing these amendments, and the 

Board adopted them as proposed. 


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202See AS 2101.06E. 

203See AS 2101.06I. This provision does not 

change the existing requirement for the other 

auditors’ documentation (including the second 

other auditor’s) to be accessible to the office issuing 

the auditor’s report. (See AS 1215.18 as amended.) 

204See id. 

205See AS 2101.06E. 

206See AS 1201.06d. 207See id. 

208Rescinded AS 1205 did not use the term 

‘‘referred-to auditor.’’ The definition of referred-to 

auditor is discussed above in this release. 

209As discussed above, AS 1205 also includes 

requirements for audits in which the auditor 

assumes responsibility for the work of another firm. 

210According to PCAOB staff analysis of Form AP 

filings with the PCAOB, lead auditors currently 

divide responsibility with another auditor in about 

40 issuer audits per year. 

211With respect to supervision, if there is more 

than one referred-to auditor, the requirements in AS 

1206.03–.09 apply to the lead auditor regarding 

each referred-to auditor separately. If the lead 

auditor assumes responsibility for the work of 

another accounting firm, the lead auditor would be 

required to supervise the other firm’s work in 

accordance with AS 1201. 

Under the final amendments, the lead 

auditor may seek assistance from a first 

other auditor in performing procedures 

relating to a second other auditor’s 

qualifications, including (i) compliance 

with independence and ethics 

requirements (under AS 2101.06D),202

and (ii) knowledge, skill, and ability, 

and certain other items (under AS 

2101.06H).203

The amendments emphasize that the 

lead auditor remains responsible for 

determining the audit engagement’s 

compliance with the independence and 

ethics requirements pursuant to AS 

2101.06b.204 If the lead auditor seeks 

assistance from the first other auditor, it 

should instruct the first other auditor to 

inform the lead auditor of the results of 

procedures, including bringing to the 

lead auditor’s attention any information 

indicating that a second other auditor is 

not in compliance with the 

independence and ethics 

requirements.205 Further, allowing the 

lead auditor to seek assistance from a 

first other auditor regarding the second 

other auditor’s knowledge, skill, and 

ability is consistent with the existing 

supervisory requirement in AS 1201.06, 

which provides that an auditor (first 

other auditor in this instance) should 

take into account the second other 

auditor’s qualifications to determine the 

necessary extent of supervision of the 

second other auditor’s work.206

A couple of commenters agreed that 

the requirements applicable to multitiered audits relative to the planning 

procedures regarding a second other 

auditor’s qualifications were clear and 

appropriate and supported the notion 

that the first other auditor is often best 

suited to perform these procedures. 

However, one commenter had concerns 

with the placement of the requirement 

related to knowledge, skill, and ability 

in a multi-tiered audit and suggested 

relocating it from AS 2101.06I to a note 

to AS 2101.06H but did not provide 

reasons for the concern. The same 

commenter also recommended that the 

first other auditor be expected to 

communicate to the lead auditor any 

concerns about the second other 

auditor’s knowledge, skill, and ability. 

With regard to the commenter’s point 

on relocating the requirement to a note, 

the Board considered the comment but 

determined that moving the requirement 

to a note in AS 2101.06H is not 

necessary as its placement in a 

paragraph is sufficiently clear. 

Regarding a first other auditor’s 

concerns about the second other 

auditor’s knowledge, skill, and ability, a 

key element for determining the extent 

of supervision necessary is taking into 

account an engagement team member’s 

knowledge, skill, and ability.207 If the 

first other auditor had concerns 

regarding the knowledge, skill, and 

ability of a second other auditor, the 

first other auditor would take this into 

account and increase the extent of its 

supervision of the second other 

auditor’s work. Additionally, under AS 

1201.13, the first other auditor is 

required to determine—based on a 

review of the documentation provided 

by the second other auditor (pursuant to 

AS 1201.09–.12), discussions with the 

second other auditor, and other 

information obtained by the lead auditor 

during the audit—whether the second 

other auditor performed the work in 

accordance with the instructions and 

whether additional audit evidence 

should be obtained by the first other 

auditor, second other auditor, or the 

lead auditor. Having considered the 

comments received, the Board adopted 

the requirements as proposed. 

Further Tiers of Other Auditors 

In addition to the first and second 

other auditors, some engagements may 

involve further tiers of other auditors. 

For example, in the scenario discussed 

above, the business unit in Germany 

could acquire a company in Belgium, 

audited by a local firm, and the second 

other auditor in Germany could 

supervise and use the work of its 

Belgian counterpart (a third other 

auditor). As noted, the lead auditor 

could seek assistance from the U.K. firm 

in supervising the work of the second 

other auditor in Germany, which would 

include the German firm’s supervision 

of the third other auditor in Belgium. 

PCAOB standards are designed to 

work in situations involving multiple 

tiers of other auditors. While the 

amendments are focused on the 

planning and supervision 

responsibilities of the lead auditor, 

other requirements of PCAOB standards 

apply, and would continue to apply 

under the amendments, to all auditors 

involved in the audit. For example, in 

determining the necessary extent of 

supervision of the third other auditor’s 

work, the second other auditor would be 

required to take into account items 

listed in AS 1201.06, including the 

nature of the work assigned to the third 

other auditor, the risks of material 

misstatement, and the third other 

auditor’s knowledge, skill, and ability. 

No commenters expressed views 

different from the approach in the 2021 

SRC regarding further tiers of other 

auditors. Therefore, the Board adopted 

the requirements as proposed. 

Dividing Responsibility for the Audit 

With Another Accounting Firm 

See AS 1206 

AS 1206, a new standard, specifically 

addresses the lead auditor’s division of 

responsibility for the audit with another 

accounting firm (i.e., a referred-to 

auditor).208 It carries forward, with 

certain modifications, relevant 

requirements for the dividedresponsibility scenario that are in 

rescinded AS 1205.209 Currently, 

divided-responsibility engagements are 

relatively uncommon.210

AS 1206 applies when the lead 

auditor divides responsibility for an 

audit of the financial statements and, if 

applicable, ICFR. Similar to AS 1205, 

the new standard does not require the 

lead auditor to supervise the referred-to 

auditor’s work. Rather, each auditor is 

required to supervise its respective 

engagement team members in 

accordance with AS 1201.211

These requirements apply in 

circumstances where the lead auditor 

decides to refer to the work of the 

referred-to auditor in its auditor’s 

report. In such circumstances, the lead 

auditor does not assume responsibility 

for the work of the referred-to auditor. 

Instead, the lead auditor discloses the 

division of responsibility between the 

lead auditor and the referred-to auditor 

and the magnitude of the portion of the 

audit performed by the referred-to 

auditor. 

Under AS 1206, both the lead auditor 

and referred-to auditor remain 

responsible for their respective audits. 

For example, both the lead auditor and 

referred-to auditor are required to 

comply with PCAOB standards when 

planning and performing their 


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212See, e.g., AS 2101.11–.14 and AS 2105.10. 

213See AS 1206.03 and AS 1205.10. 

214See AS 1206.05a and AS 1205.10b. 

215See AS 1206.06b and AS 1205.10c(ii)–.10c(iii). 

216See AS 1206.08a and .08c, and AS 1205.07. 

217See AS 1206.04 and AS 1205.10(c)(i). 

218See AS 1206.07 (requiring the lead auditor, if 

it cannot divide responsibility, to plan and perform 

procedures necessary for it to issue an opinion, 

qualify or disclaim its opinion, or withdraw from 

the engagement) and AS 1205.11. 

219AS 1206.05b. 

220AS 1206.06c. 

221AS 1206.08b. 

222AS 1206.06d. 

223AS 2101.06A–.06C also address, among other 

things, the sufficiency-of-participation 

determination for audits subject to AS 1201. 

224The SEC has historically accepted audit 

reports indicating a division of responsibility 

between a lead auditor and referred-to auditor that 

express their opinion on the respective financial 

statements. 

225See Section III.F.1 of the 2021 SRC for a more 

detailed discussion of comments received (e.g., 

concern that a lead auditor might divide 

responsibility to avoid liability for its work on the 

audit, concern that the effectiveness of audit 

committee oversight could be reduced if the audit 

committee has no relationship with the referred-to 

auditor, risk of leakage of market sensitive 

information may increase if the referred-to auditor 

is involved in a corporate transaction), including 

the Board’s responses. 

226Similar comments were made by certain 

members of the Board’s Standing Advisory Group 

(‘‘SAG’’) at the May and December 2016 SAG 

meetings and the May 2017 SAG meeting. At the 

May 2016 and 2017 SAG meetings, the observer 

from the Auditing Standards Board acknowledged 

that AICPA standards allow for divided 

responsibility. Transcript excerpts for these 

meetings are available in the docket for this 

rulemaking on the PCAOB’s website, available at 

https://pcaobus.org/Rulemaking/Pages/ 

Docket042.aspx. 

227See also discussion below regarding investee 

financial statements audited by an investee’s 

auditor. 

228See AS 1206.02. 

respective audits, including making 

materiality determinations, and issuing 

audit reports.212

AS 1206 sets forth certain 

requirements for the lead auditor, which 

carry forward or strengthen the 

requirements of AS 1205. For example, 

AS 1206 requires the lead auditor to: 

• Determine that audit procedures are 

performed, in coordination with the 

referred-to auditor, with respect to the 

consolidation or combination of the 

portions of the financial statements 

audited by the referred-to auditor; 213

• Obtain a written representation 

from the referred-to auditor regarding 

the referred-to auditor’s independence 

under requirements of the PCAOB and 

the SEC; 214

• Determine, based on inquiries made 

to the referred-to auditor and other 

information obtained by the lead auditor 

during the audit, that the referred-to 

auditor is familiar with the relevant 

requirements of the applicable financial 

reporting framework, the standards of 

the PCAOB, and the financial reporting 

requirements of the SEC; 215 and 

• Disclose in its auditor’s report (i) 

the division of responsibility between 

the lead auditor and the referred-to 

auditor and (ii) the magnitude of the 

portions of the company’s financial 

statements audited by the auditors.216

• Communicate to the referred-to 

auditor the decision to divide 

responsibility for the audit with the 

referred-to auditor 217 and determine a 

course of action when the lead auditor 

is unable to divide responsibility.218

In addition, AS 1206 establishes new 

requirements. For example, AS 1206 

requires the lead auditor to: 

• Obtain a representation from the 

referred-to auditor that the referred-to 

auditor is duly licensed to practice 

under the laws of the jurisdiction that 

apply to the referred-to auditor’s 

work; 219

• If the referred-to auditor plays a 

substantial role in the preparation or 

furnishing of the lead auditor’s report, 

determine whether the referred-to 

auditor is registered with the 

PCAOB; 220

• Disclose the name and refer to the 

report of the referred-to auditor in the 

lead auditor’s report; 221 and 

• Establish which auditor (lead 

auditor or referred-to auditor) has 

audited, and disclose in the lead 

auditor’s report which auditor has taken 

responsibility for, the conversion 

adjustments in situations where the 

financial statements of the company’s 

business unit audited by the referred-to 

auditor were prepared using a financial 

reporting framework that differs from 

the financial reporting framework used 

to prepare the company’s financial 

statements.222

Consistent with AS 1205, a note to AS 

1206.01 requires that the engagement 

partner in a divided-responsibility 

scenario determine the sufficiency of his 

or her firm’s participation in the audit 

to serve as the lead auditor. This 

requirement appears in AS 2101.06A– 

.06C, discussed above.223

The 2016 Proposal retained the 

divided-responsibility approach that has 

long been permitted in PCAOB 

standards 224 and solicited views on 

whether this approach should be 

eliminated. Most commenters in the 

2016 Proposal supported retaining the 

divided-responsibility approach because 

they observed no compelling practice 

issues that would suggest a need to 

eliminate it. In the 2017 SRC, the 

approach was retained. 

Although most commenters to the 

2016 Proposal supported retaining the 

divided-responsibility approach, some 

commenters on both the 2016 Proposal 

and the 2017 SRC expressed concern 

about retaining the approach.225 They 

stated that the lead auditor is ultimately 

responsible for the overall audit opinion 

and should not refer to other 

auditors.226

Having considered the comments 

received, the Board has decided to 

retain the divided-responsibility 

alternative (with certain conditions set 

forth in the standard). Without the 

ability for auditors to divide 

responsibility, some companies may 

encounter situations in which no 

accounting firm is in a position to opine 

on the company’s financial statements. 

For example, the lead auditor may be 

unable to plan and supervise another 

auditor’s work if the subsidiary audited 

by the other auditor is acquired by the 

lead auditor’s audit client late in a fiscal 

year. In this situation, the lead auditor 

may be unable to gain access to people 

(e.g., subsidiary management, other 

auditor’s personnel) and documentation 

(e.g., subsidiary records, other auditor’s 

working papers).227 As a result, the lead 

auditor may be unable to obtain 

sufficient appropriate audit evidence to 

support an unqualified audit opinion on 

the company’s consolidated financial 

statements and may determine to 

withdraw from the audit engagement or 

disclaim its opinion. 

Objectives 

See Appendix A of AS 2101 and 

Paragraph .02 of AS 1206 

AS 1206, unlike AS 1205 (which the 

Board has rescinded), discusses the 

following objectives of the lead auditor: 

(i) communicate with the referred-to 

auditor and determine that audit 

procedures are properly performed with 

respect to the consolidation or 

combination of accounts in the 

company’s financial statements and, 

where applicable, internal control over 

financial reporting; and (ii) make the 

necessary disclosures in the lead 

auditor’s report.228

Some commenters suggested revising 

the proposed objectives. One 

commenter on the 2016 Proposal 

suggested that the objectives should 

include performing procedures 

necessary to make reference to the 

report of the referred-to auditor in the 

lead auditor’s report, and making 

necessary disclosures in the report. 

Another commenter suggested 

broadening the objective to cover the 

assessment of the referred-to auditor’s 

independence and competence and 


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229See AS 1206.03–.07 regarding performing 

procedures with respect to the audit of the referredto auditor, and AS 1206.08–.09 regarding making 

reference in the lead auditor’s report. See also AS 

1206.05–.06 regarding certain qualifications of the 

referred-to auditor, and AS 1206.03–.04 regarding 

coordinating certain procedures with, and 

communicating certain matters to, the referred-to 

auditor. 

230As stated in footnote 7 of AS 1206.03, the term 

‘‘business units’’ includes subsidiaries, divisions, 

branches, components, or investments. 

231See Regulation S–X Rule 2–05, 17 CFR 210.2– 

05, which requires that, in divided-responsibility 

scenarios, the referred-to auditor’s report be filed 

with the SEC. Rule 2–05 provides that if, with 

respect to the examination of the financial 

statements, part of the examination is made by an 

independent accountant other than the principal 

accountant and the principal accountant elects to 

place reliance on the work of the other accountant 

and makes reference to that effect in his report, the 

separate report of the other accountant must be 

filed. The term ‘‘principal accountant’’ is used in 

the rule. See discussion above regarding whether 

the term ‘‘referred-to auditor’’ is aligned with the 

term ‘‘principal accountant’’ used by the SEC, 

noting that the definitions in this rulemaking do not 

affect the applicability of SEC terms or rules to 

audits involving other auditors or referred-to 

auditors, including the definition of ‘‘principal 

accountant.’’ 

232See AS 1205.10(c)(i). 

233AS 1205.10 requires the lead auditor to ‘‘make 

inquiries’’ concerning the other auditor’s 

independence, which inquiries ‘‘may include’’ 

procedures such as obtaining a representation from 

the other auditor that the other auditor is 

independent. 

234See AS 1206.06 and .07. 

235Under AS 1205.11, the lead auditor should 

appropriately qualify or disclaim its opinion on the 

consolidated financial statements if it concludes 

that it can neither assume responsibility for the 

work of the other auditor nor divide responsibility 

with the other auditor. 

236AS 3101, The Auditor’s Report on an Audit of 

Financial Statements When the Auditor Expresses 

an Unqualified Opinion, and AS 3105, Departures 

from Unqualified Opinions and Other Reporting 

Circumstances, apply to auditors’ reports issued for 

audits of historical financial statements that are 

intended to present financial position, results of 

operations, and cash flows in conformity with the 

applicable financial reporting framework. AS 2201 

applies to auditors’ reports issued for audits of 

management’s assessment of the effectiveness of 

internal control over financial reporting that is 

integrated with an audit of the financial statements. 

237See Regulation S–X Rule 2–02(b)(1), 17 CFR 

210.2–02(b)(1); SEC, Commission Guidance 

Regarding the Public Company Accounting 

Oversight Board’s Auditing and Related 

Professional Practice Standard No. 1, Release No. 

34–49708 (May 14, 2004). 

proper communication between the lead 

auditor and referred-to auditor to clarify 

roles and responsibilities. 

Having considered the comments 

received, the Board believes that the 

recommended revisions relate to details 

of performance and reporting rather 

than to high-level objectives of the 

standard. It also notes that the lead 

auditor would effectively accomplish 

the objectives suggested by the 

commenters by performing the 

procedures described in AS 1206.229

Thus, the Board adopted the standard’s 

objectives as proposed. 

Performing Procedures With Respect to 

the Audit of the Referred-to Auditor 

Performing Procedures Regarding the 

Consolidation or Combination of the 

Financial Statements 

See Paragraph .03 of AS 1206 

Under AS 1206.03, the lead auditor 

should determine that audit procedures 

are performed, in coordination with the 

referred-to auditor, to test and evaluate 

the consolidation or combination of the 

financial statements of the business 

units 230 audited by the referred-to 

auditor into the company’s financial 

statements. Matters affecting the 

consolidation or combination of the 

financial statements typically include 

items that are not in the scope of the 

referred-to auditor’s audit, such as 

elimination of intercompany 

transactions with the business unit 

audited by the referred-to auditor. 

This provision in AS 1206 builds on 

and strengthens a requirement for the 

lead auditor in AS 1205.10 regarding 

adopting appropriate measures to assure 

the coordination of the lead auditor’s 

activities with those of the referred-to 

auditor in order to achieve a proper 

review of matters affecting the 

consolidating or combining of accounts 

in the financial statements. Commenters 

did not address this proposed provision, 

and the Board adopted it as proposed. 

Communicating the Plan To Divide 

Responsibility 

See Paragraph .04 of AS 1206 

Under AS 1206.04, the lead auditor is 

required to communicate to the referredto auditor, in writing, its plan to divide 

responsibility for the audit with the 

referred-to auditor pursuant to PCAOB 

standards. A referred-to auditor who has 

been informed of the lead auditor’s plan 

to divide responsibility will be able to 

take the necessary steps to ascertain the 

implications of participating in the 

audit of the company. For example, SEC 

rules require that the audit report 

prepared by the referred-to auditor be 

filed with the SEC.231

This provision in AS 1206 builds on 

and strengthens a requirement for the 

lead auditor in AS 1205.10 regarding 

ascertaining that the referred-to auditor 

is aware of the divided-responsibility 

arrangement.232 Commenters did not 

address this provision, and the Board 

adopted it as proposed. 

Requesting a Written Representation 

Regarding Independence and Licensing 

See Paragraph .05 of AS 1206 

AS 1206.05a provides that the lead 

auditor should obtain a written 

representation from the referred-to 

auditor that the referred-to auditor is 

independent of the audit client under 

the requirements of the PCAOB and 

SEC. This provision is designed to 

strengthen the existing requirements 

regarding the lead auditor’s 

responsibilities with respect to the 

independence of the referred-to 

auditor.233 Commenters did not address 

this proposed requirement, and the 

Board adopted it as proposed. 

AS 1206.05b provides that the lead 

auditor should obtain a written 

representation from the referred-to 

auditor that it is duly licensed to 

practice under the laws of the 

jurisdiction that apply to the work of the 

referred-to auditor. This requirement is 

not included in AS 1205. Commenters 

did not address this proposed 

requirement of AS 1206, and the Board 

adopted it as proposed. 

Conditions for the Lead Auditor To 

Divide Responsibility, and the Lead 

Auditor’s Course of Action When It Is 

Unable To Divide Responsibility 

See Paragraphs .06 and .07 of AS 1206 

AS 1206 describes the (i) conditions 

that must be met for the lead auditor to 

divide responsibility with the referredto auditor and (ii) lead auditor’s course 

of action when it is unable to divide 

responsibility.234 These provisions 

strengthen the requirements in AS 

1205.11.235 The requirements of AS 

1206, which are discussed in more 

detail below, are designed to facilitate 

compliance with PCAOB and SEC 

independence requirements and PCAOB 

registration rules, and to reduce the 

likelihood of filing auditors’ reports 

with the SEC that violate any relevant 

local licensing requirements. 

Conditions for the Lead Auditor To 

Divide Responsibility 

Performed an Audit and Issued an 

Auditor’s Report in Accordance With 

PCAOB Standards, and Was Registered 

With PCAOB (When Applicable) 

Under AS 1206.06a, the lead auditor 

may divide responsibility with another 

accounting firm only if the referred-to 

auditor has represented that it has 

performed its audit and issued its 

auditor’s report in accordance with 

PCAOB standards.236 This provision, 

which is not included in AS 1205, is 

consistent with existing SEC rules and 

guidance with respect to the auditors’ 

reports filed with the SEC.237 Further, 

according to AS 1206.06c, the lead 

auditor may divide responsibility with 

another accounting firm that would play 


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238See Section 102(a) of Sarbanes-Oxley, 15 

U.S.C. 7212(a); PCAOB Rule 2100, Registration 

Requirements for Public Accounting Firms; 

paragraph (p)(ii) of PCAOB Rule 1001 (defining the 

phrase ‘‘play a substantial role in the preparation 

or furnishing of an audit report’’). 

239See AS 3101.06 and .09g, and AS 2201.85A 

and .85Dd. 

240PCAOB staff analyzed Form 10–K and Form 

20–F filings with the SEC for the twelve-month 

period ended April 30, 2022. This search identified 

38 divided-responsibility opinions, three of which 

the lead auditor divided responsibility with another 

auditor when the company and a business unit 

prepared their financial statements under different 

financial reporting frameworks. These filings did 

not state which auditor audited the conversion 

adjustments. 

241See 2017 SRC at 25–26. 

242See, e.g., AS 1215.05a (providing that audit 

documentation should ‘‘[d]emonstrate that the 

engagement complied with the standards of the 

PCAOB’’). 

a substantial role in the preparation or 

furnishing of the lead auditor’s report, 

or, if the referred-to auditor’s report is 

with respect to a business unit that is 

itself an issuer, broker, or dealer, only 

if that firm is registered with the 

PCAOB.238

AS 1206 mirrors current PCAOB 

registration requirements. It does not 

establish additional criteria for 

registering with the PCAOB or 

otherwise change the registration 

requirements. Specifically, AS 1206 will 

not allow the lead auditor to divide 

responsibility for the audit with an 

unregistered public accounting firm 

unless that firm is not required to be 

registered with the PCAOB under 

Sarbanes-Oxley Section 102(a) and 

PCAOB Rule 2100. 

The standard the Board adopted 

clarifies, in a footnote to paragraph .06, 

that if the referred-to auditor is not 

registered with the PCAOB, the 

requirement in AS 3101 regarding 

stating in the auditor’s report that the 

auditor is registered with the PCAOB 

does not apply to the referred-to 

auditor’s report.239 The same footnote 

also points out that disclosure in the 

referred-to auditor’s report that a firm is 

not registered with the PCAOB (or 

omission of a statement that the firm is 

registered) does not relieve that firm of 

its obligation to register when required. 

The Board received no comments on 

this provision and adopted it as 

proposed. 

Knowledge of Relevant Requirements 

and Standards 

Under AS 1206.06b, the lead auditor 

may divide responsibility with the 

referred-to auditor only if the lead 

auditor determines, based on inquiries 

made to the referred-to auditor and 

other information obtained by the lead 

auditor during the audit, that the 

referred-to auditor is familiar with the 

relevant requirements of the applicable 

financial reporting framework, PCAOB 

standards, and SEC financial reporting 

requirements. 

The final standard’s formulation ‘‘is 

familiar with’’ was included in the 2021 

SRC, modifying the earlier formulation 

‘‘knows,’’ to reflect the difference in the 

lead auditor’s relationship with the 

referred-to auditor (for divided 

responsibility) and the other auditor (for 

supervision). As noted in the 2021 SRC, 

the lead auditor does not supervise the 

referred-to auditor, because the referredto auditor is responsible for its audit of 

and audit report on the financial 

statements (and, if applicable, ICFR) of 

the company’s business unit. The lead 

auditor does not take responsibility for 

the referred-to auditor’s audit. In 

contrast, when an other auditor is 

involved in the audit, the lead auditor 

supervises the other auditor’s work, 

takes responsibility for that work, and is 

therefore required to obtain a more indepth understanding of the other 

auditors’ knowledge, skill, and ability 

when establishing the necessary extent 

of supervision than for a referred-to 

auditor in a divided-responsibility 

audit. 

Commenters did not address this 

amendment, and the Board adopted it as 

proposed. 

Financial Reporting Framework Used 

To Prepare the Company’s and Business 

Unit’s Financial Statements 

Under AS 1206.06d, in relatively 

uncommon situations when the 

financial statements of the company’s 

business unit audited by the referred-to 

auditor are prepared using a financial 

reporting framework that differs from 

the framework used to prepare the 

company’s financial statements, the lead 

auditor may divide responsibility only if 

(i) either the lead auditor or the referredto auditor has audited the conversion 

adjustments and (ii) the auditor’s report 

of the lead auditor indicates which 

auditor audited the conversion 

adjustments. (AS 1205, which is being 

rescinded, does not explicitly address 

these situations.) 240 The final standard’s 

approach was proposed in the 2017 

SRC, reversing the restriction in the 

2016 Proposal that would not have 

permitted the division of responsibility 

in the audit of a company whose 

applicable financial reporting 

framework differs from that of its 

business unit.241 The Board believes the 

resulting approach is practicable and 

balanced and adopted the provision 

substantially as proposed in the 2017 

SRC. 

Commenters on the 2017 SRC largely 

agreed with the revised provision, 

although two commenters 

recommended revisions. One 

recommended an additional 

requirement, that the lead auditor 

document its basis for concluding that 

the auditor of the conversion 

adjustments has sufficient knowledge of 

both reporting frameworks. Another 

commenter asserted that the lead 

auditor’s disclosure of another auditor’s 

audit of conversion adjustments could 

be misconstrued as a disclaimer of 

responsibility for that work. 

With regard to the first commenter’s 

recommendation, the Board notes that a 

separate documentation requirement is 

unnecessary because the lead auditor’s 

compliance with the requirements 

relating to the referred-to auditor’s 

knowledge of the relevant requirements 

is already required to be reflected in 

audit documentation under the existing 

PCAOB standards.242 With regard to the 

second commenter’s argument, the 

Board notes that the required disclosure 

in the lead auditor’s report would 

clearly identify the auditor that has 

taken responsibility for auditing the 

conversion adjustments and the PCAOB 

has inspection and enforcement 

authority over both firms. 

Appendix B of AS 1206 provides 

examples of the introductory paragraphs 

in the lead auditor’s report when the 

conversion adjustments are audited by 

the lead auditor (Example 3) and the 

referred-to auditor (Example 4). 

Lead Auditor’s Course of Action When 

the Lead Auditor Is Unable To Divide 

Responsibility Under AS 1206 

AS 1206.07 provides guidance for 

situations in which the lead auditor is 

unable to divide responsibility with 

another accounting firm. Such a 

situation may arise, for example, due to 

the lead auditor’s concerns about the 

qualifications of the referred-to auditor. 

Concerns about the referred-to auditor’s 

qualifications could encompass both 

competence and PCAOB registration 

status. The lead auditor may also have 

concerns about whether the referred-to 

auditor’s audit was performed in 

accordance with PCAOB standards if, 

for instance, information comes to the 

lead auditor’s attention that raises such 

doubt. 

For situations in which the lead 

auditor is unable to divide 

responsibility for the audit with another 

accounting firm, paragraph .07 of AS 

1206 describes the following 

alternatives for the lead auditor’s course 

of action: 

• Planning and performing 

procedures with respect to the portion 


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243AS 1206, in a note to paragraph .07b, requires 

the lead auditor to state the reasons for departing 

from an unqualified opinion and, when expressing 

a qualified opinion, disclose the magnitude of the 

portion of the company’s financial statements to 

which the lead auditor’s qualification extends. A 

footnote to AS 1206.07 refers to the relevant 

requirements of AS 3105 and Appendix C of AS 

2201. 

244 In addition, Appendix B of AS 1206 includes 

examples of reporting by the lead auditor (Examples 

1 through 4). The Board’s consideration of certain 

aspects of the examples are discussed below. In 

addition, the examples consider the requirements of 

AS 3101 and AS 3501. Those standards were 

approved by the SEC after the issuance of the 2016 

Proposal. See SEC Release No. 34–81916 (Oct. 23, 

2017). 

245See AS 1206.08a. 

246See AS 1206.08c. See also second note to AS 

1206.01, which states when there is more than one 

referred-to auditor, the lead auditor must apply the 

requirements of AS 1206.03–.09 in relation to each 

of the referred-to auditors individually. 

247See AS 1206.09. See also note to paragraph .10 

of AS 2810, Evaluating Audit Results (describing 

‘‘clearly trivial’’). 

248PCAOB staff analyzed Form 10–K and Form 

20–F filings with the SEC for the twelve-month 

period ended April 30, 2022. This search identified 

38 divided-responsibility opinions, two of which 

made reference to multiple-divided-responsibility 

audits. Both of those opinions presented the 

magnitude disclosures disaggregated. 

of the company’s financial statements 

covered by the other accounting firm’s 

report that are necessary for the lead 

auditor to express an opinion on the 

company’s financial statements and, if 

applicable, ICFR; 

• Appropriately qualifying or 

disclaiming the lead auditor’s report; 243

or 

• Withdrawing from the engagement. 

A commenter requested that the 

standard state that the circumstances 

described in AS 1206.07 exist in 

situations when the lead auditor 

originally expected to divide 

responsibility with the referred-to 

auditor but subsequently determined 

that it was no longer possible. This 

commenter also stated that AS 1206.07, 

as proposed, limits the lead auditor’s 

course of action to the three options 

presented and recommended that 

another option be added whereby the 

work would be performed by another 

accounting firm. 

The Board agrees that AS 1206.07 

applies only in situations when the lead 

auditor originally expected to divide 

responsibility with another accounting 

firm but subsequently determined that 

dividing responsibility with that 

accounting firm was no longer possible. 

Further, the Board notes that the course 

of action suggested by the commenter 

(i.e., having another accounting firm 

perform the work) is already available to 

the lead auditor under AS 1206.07a, as 

a lead auditor that complies with the 

relevant requirements of PCAOB 

standards is permitted to plan and 

perform procedures with respect to the 

business unit itself, divide 

responsibility for that work with 

another referred-to auditor, or supervise 

and assume responsibility for the work 

of an other auditor. 

No further comments were received 

on this topic and the Board adopted the 

requirement substantially as proposed. 

Making Reference in the Lead Auditor’s 

Report to the Referred-to Auditor’s 

Audit and Report 

See Paragraphs .08 and .09 of AS 1206 

Enhanced Requirements for Making 

Reference 

Paragraphs .08 and .09 of AS 1206 

establish requirements for making 

reference in the lead auditor’s report to 

the audit and auditor’s report of the 

referred-to auditor.244 Because this 

rulemaking generally carries forward, 

with certain modifications, AS 1205’s 

provisions for divided-responsibility 

audits, the requirements for making 

reference in AS 1206 are similar to the 

analogous provisions of AS 1205. For 

example, similar to AS 1205, AS 1206 

requires that the lead auditor’s report (or 

reports, if the lead auditor chooses to 

issue separate reports on the company’s 

financial statements and internal control 

over financial reporting): 

• Indicate clearly, in the Opinion on 

the Financial Statements and, if 

applicable, Internal Control over 

Financial Reporting and Basis for 

Opinion sections, the division of 

responsibility between the portion of 

the company’s financial statements and, 

if applicable, ICFR, covered by the lead 

auditor’s own audit and that covered by 

the audit of the referred-to auditor; 245

and 

• Disclose the magnitude of the 

portion of the company’s financial 

statements and, if applicable, ICFR, 

audited by the referred-to auditor (or by 

each of the referred-to auditors if there 

is more than one). This may be done by 

stating the dollar amounts or 

percentages of total assets, total 

revenues, or other appropriate criteria 

necessary to identify the portion of the 

company’s financial statements audited 

by each of the referred-to auditors.246

If the report of the referred-to auditor 

includes an opinion other than an 

unqualified opinion or includes 

explanatory language, AS 1206, similar 

to AS 1205, requires that the lead 

auditor make reference in the lead 

auditor’s report to the departure from 

the unqualified opinion and its 

disposition, or the explanatory 

language, or to both, unless the matter 

is clearly trivial to the company’s 

financial statements.247 AS 1206 does 

not require that the lead auditor’s report 

make reference to critical audit matters 

(CAMs) of the referred-to auditor, as 

each auditor must determine whether 

there are any CAMs arising from its own 

audit under AS 3101. 

A commenter questioned whether, 

under AS 1206.08c, the magnitude of 

the portion of the company’s financial 

statements audited by the referred-to 

auditor needs to be disclosed for each 

referred-to auditor individually. The 

commenter asserted that in practice the 

lead auditors’ reports generally disclose 

the magnitude of the referred-to 

auditors’ portions of the company’s 

financial statements, and if applicable 

ICFR, in combination (not for each 

referred-to auditor). The commenter 

therefore recommended that the Board 

modify the requirement in line with the 

commenter’s understanding of current 

practice. 

The Board believes that the lead 

auditor’s report should disclose the 

magnitude of the portion of the 

company’s financial statements and if 

applicable, ICFR, individually for each 

referred-to auditor. In addition to 

providing greater transparency to 

investors and other users of the lead 

auditor’s report about accounting firms 

involved in the audit and their 

responsibilities, the individual 

disclosure approach is not inconsistent 

with divided-responsibility reporting 

observed in practice. Based on a staff 

analysis of SEC filings, most lead 

auditor opinions that refer to multiple 

referred-to auditors disclose the 

magnitude of the referred-to auditors’ 

portions of the company’s financial 

statements individually.248 The 

amendments state in the second note to 

AS 1206.01 that the requirements in 

paragraphs .03–.09 must be applied to 

each referred-to auditor individually. 

The same commenter suggested 

replacing the proposed ‘‘and’’ (before 

the phrase ‘‘other appropriate criteria’’) 

in the last sentence of AS 1206.08c with 

‘‘or’’ to indicate that not all magnitude 

criteria need to be disclosed. The Board 

agrees that under AS 1206 the 

magnitude may be expressed by using 

the criteria listed in paragraph .08c, but 

does not require using all criteria. 

Complying with AS 1206 involves using 

criteria that are necessary to provide a 

clear and informative disclosure in the 

lead auditor’s report of the magnitude of 

the portion of the company audited by 

the referred-to auditors, and that may 

require disclosure of more than one 

criterion in some cases. To enhance 

clarity, the Board replaced the term 


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249Paragraph .09 was modified from the version 

in the 2017 SRC by: using the terminology in AS 

3101 (which was amended by the PCAOB in 2017); 

adding a footnote reference to the relevant 

requirements of AS 3101, AS 3105, and AS 2201; 

and referencing a footnote in AS 1206.06 that 

addresses certain situations where the referred-to 

auditor is not registered with the PCAOB (as 

discussed above regarding conditions for dividing 

responsibility). 

250See Rule 2–05 of Regulation S–X, 17 CFR 

210.2–05. 

251Registered public accounting firms must 

report to the Board on Form AP, pursuant to 

PCAOB Rule 3211, regarding the participation of 

other public accounting firms in the audit. Form AP 

disclosure applies to scenarios when responsibility 

for the audit is divided. 

252See SEC Release No. 34–81916 (Oct. 23, 2017). 

253 ‘‘Principal auditor’’ is used in AS 1205. 

254See Appendix B of AS 1105. See also Auditing 

Accounting Estimates, Including Fair Value 

Measurements and Amendments to PCAOB 

Auditing Standards, PCAOB Release No. 2018–005 

(Dec. 20, 2018). 

255See AS 1205.10. 

256See SEC, Division of Corporation Finance, 

Financial Reporting Manual, Topic 4, Section 

4110.5, Independent Accountants’ Involvement 

(SEC staff guidance outlining the application of 

certain PCAOB requirements in various filings with 

the SEC). 

‘‘and’’ with ‘‘or’’ as suggested by the 

commenter. 

The Board considered these 

comments and determined that the 

remaining requirements were 

sufficiently clear and adopted them as 

proposed.249

Identifying the Referred-to Auditor by 

Name 

To enhance the clarity of disclosure to 

investors and other users of the lead 

auditor’s report, the Board adopted a 

new requirement in AS 1206.08b to 

identify the referred-to auditor by name 

in the lead auditor’s report. SEC rules 

already require that the auditor’s report 

of the referred-to auditor be filed with 

the SEC, so the name of the referred-to 

auditor is already made public.250

Three commenters on the 2016 

Proposal and 2021 SRC objected to the 

proposed disclosure, because the reader 

can obtain the referred-to auditor’s 

name from the referred-to auditor’s 

report filed with the SEC or from Form 

AP filed with the PCAOB.251 Having 

considered these comments, the Board 

notes that the new provision—which 

builds on the existing disclosure of 

referred-to auditor responsibilities in 

the lead auditor’s report, without 

imposing any significant compliance 

burden on the lead auditor—will 

provide interested parties a more 

convenient mechanism for obtaining 

names of the referred-to auditors, whose 

responsibilities, but not names, have 

long been disclosed in the lead auditor’s 

report. 

Other Considerations Relating To 

Making Reference 

Some commenters on the Proposal 

and the 2017 SRC suggested addressing, 

in the reporting examples provided in 

AS 1206, situations in which the lead 

auditor issues separate reports on the 

financial statements and ICFR. Having 

considered the comments received, the 

Board included in the 2021 SRC an 

example of separate financial statement 

reporting in Appendix B of AS 1206 

(Example 2). The Board received no 

comments on this example and adopted 

it as proposed. In addition, in the 2021 

SRC, the Board modified the reporting 

examples to reflect the amendments to 

AS 3101 that were approved by the SEC 

after the issuance of the 2017 SRC.252

The examples as adopted include these 

modified examples. 

Other Matters 

Investee Financial Statements Audited 

by an Investee’s Auditor 

See Paragraphs .B1–.B2 of AS 1105 

In some audits, auditors other than 

the firm issuing the auditor’s report on 

the company’s financial statements 

perform audit procedures on the 

financial statements of the company’s 

investees, for example, for certain 

investments accounted for by the 

company under the equity method (i.e., 

investees’ auditors). Under AS 1205.14, 

the company’s auditor (i.e., investor’s 

auditor) who uses the report of an 

investee’s auditor for the purpose of 

reporting on the investor’s equity in 

underlying net assets and its share of 

earnings or losses and other transactions 

of the investee is in the position of a 

lead auditor 253 using the work and 

reports of other auditors under AS 1205. 

Under the amendments, in equity 

method investment situations, the 

investor’s auditor would look to the 

requirements of Appendix B of AS 1105, 

Audit Evidence, which describe the 

auditor’s responsibilities for obtaining 

sufficient appropriate evidence in 

situations in which the valuation of an 

investment is based on the investee’s 

financial results.254 Thus, under the 

amendments, the investor’s auditor 

would be able, where appropriate, to 

use the work and report of the investee’s 

auditor. 

The amendments add to Appendix B 

of AS 1105 certain relevant provisions 

currently included in AS 1205,255 to 

further guide auditors in equity method 

investment circumstances. First, the 

amendments refer to the independence 

of the investee’s auditor as an item for 

the investor’s auditor to consider in 

determining whether the investee’s 

auditor’s report is satisfactory. Under 

existing AS 1105.B1, financial 

statements of the investee that have 

been audited by an investee’s auditor 

whose report is satisfactory to the 

investor’s auditor may constitute 

sufficient appropriate audit evidence. 

The amendments add ‘‘making inquiries 

as to the . . . independence of the 

investee’s auditor (under the applicable 

standards)’’ (i.e., whether the investee’s 

auditor is independent of the investee) 

to the list of procedures in AS 1105.B1 

that the investor’s auditor may consider 

performing. AS 2101.06b requires the 

auditor to determine compliance with 

independence and ethics 

requirements.256

Second, the amendments refer to the 

professional reputation or independence 

of the investee’s auditor as an item for 

the investor’s auditor to consider in 

determining whether it needs additional 

evidence regarding the investee’s 

financial results. Under existing AS 

1105.B2, if in the auditor’s judgment 

additional evidence is needed 

concerning the investment, the auditor 

should perform procedures to gather 

evidence. The amendments add the 

investor’s auditor’s ‘‘concerns about the 

professional reputation or independence 

of the investee’s auditor’’ to the list of 

examples that may cause the investor’s 

auditor to conclude that additional 

evidence is needed. 

Because of a wide range of potential 

scenarios in practice involving equity 

method investees, the amendments do 

not specify which auditor should 

perform procedures to obtain additional 

evidence. Under the facts and 

circumstances of a particular audit, the 

investor’s auditor may determine, for 

example, to use its own staff to perform 

procedures or seek assistance from the 

investee’s auditor and supervise the 

investee’s auditor’s work under AS 

1201. The amendments also preserve 

the ability of the investor’s auditor 

(afforded in the current requirements) to 

divide responsibility for the audit with 

the investee’s auditor, where 

appropriate. In such situations, the new 

standard AS 1206 would apply. 

Several commenters were supportive 

of the proposed amendments for 

investee auditors, with some noting that 

the requirements provide a reasonable 

approach, while not being too 

prescriptive to allow for the investor 

auditor to make judgments. One 

commenter suggested that the Board 

define the term ‘‘investee auditor’’ and 

clarify in the rule text that the investee 

auditor is not considered an ‘‘other 

auditor.’’ This commenter stated that 

this point is explicit in the release but 


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257See AS 1105.B3, which uses the term 

‘‘investee auditor’s report.’’ 

258See SEC Staff FAQ on https://www.sec.gov/ 

info/accountants/controlfaq.htm—Question 2. 

Under this approach, while ICFR related to an 

investee’s financial reporting is out-of-scope, 

internal control over financial reporting related to 

an investor’s recording of amounts associated with 

its investment is in-scope. 

259As proposed and as the Board adopted, 

footnote 1 to AS 1105.B1 states: ‘‘In determining 

whether the report of the investee’s auditor is 

satisfactory for this purpose, the auditor may 

consider performing procedures such as making 

inquiries as to the professional reputation, standing, 

and independence of the investee’s auditor (under 

the applicable standards), visiting the investee’s 

auditor and discussing the audit procedures 

followed and the results thereof, and reviewing the 

audit program and/or working papers of the 

investee’s auditor.’’ (emphasis added). 

260See footnote 1 to AS 1105.B1. 

261See Financial Accounting Standards Board 

Accounting Standards Codifications, Subtopic 323– 

10, Investments–Equity Method and Joint Ventures, 

paragraph 10–35–6. See also International 

Accounting Standards Board International 

Accounting Standard 28, Investments in Associates 

and Joint Ventures, paragraph 34. 

not apparent in the proposed 

amendments. Another commenter 

expressed concern that the proposed 

terms and definitions in the rulemaking, 

including the term ‘‘investee’s auditor,’’ 

are fairly prescriptive and may be out of 

date after the Board adopts a final 

standard. 

The Board considered these 

comments in adopting the amendments. 

The term investee’s auditor pertains to 

a concept that is not new and is 

consistent with the terminology already 

in the standard,257 and the Board does 

not believe that the term should be 

revised or eliminated. With regard to the 

comment that the Board should define 

the term investee auditor and clarify 

that the investee auditor is not 

considered an other auditor, it is 

possible that an investor’s auditor may 

decide that it is able to supervise an 

investee’s auditor under AS 1201, 

having considered the factors in AS 

2101.12. In that situation, the investee’s 

auditor could be considered an other 

auditor under the amendments. 

Another commenter suggested that, in 

the situation involving an investee’s 

auditor, sufficient appropriate audit 

evidence cannot be obtained through 

simple evaluation of sufficiency of the 

investee’s financial statements and 

results. This commenter suggested that 

additional procedures may be required, 

such as the investor’s auditor obtaining 

an understanding of the investee’s 

control environment as well as 

performing an evaluation or assessment 

of prior audit risks and business, 

financial, and market risks, including 

how those risks have been managed by 

the investee. As noted in the 2021 SRC, 

unlike with the supervision of other 

auditors by the lead auditor, the 

investor’s auditor may not be able to 

establish an arrangement with the 

investee’s auditor or investee 

management under which the investor’s 

auditor would inform, direct, and 

review work performed by the investee’s 

auditor or obtain information from 

investee management. Therefore, while 

obtaining an understanding of the 

investee’s control environment may be 

beneficial in certain cases, access issues 

may prevent it. 

Further, the SEC staff has previously 

clarified that ICFR of an equity method 

investee is not part of the investor’s 

internal control over financial 

reporting 258 and therefore not part of 

the assessments required under Sections 

404(a) and 404(b) of the Sarbanes-Oxley 

Act of 2002. Lastly, depending on the 

financial reporting framework of the 

investee, financial and market risks may 

be required to be disclosed within the 

financial statements. The Board believes 

that these disclosure requirements, if 

complied with, should be sufficient in 

some cases of equity method investees 

to contribute to an investor’s auditor 

obtaining sufficient appropriate 

evidence. The Board agrees with the 

commenter that there may be situations 

in which further understanding by the 

investor’s auditor of ICFR or the risks of 

the investee would be necessary. The 

Board notes that the amendments are 

principles-based and can be used to 

appropriately determine the necessary 

procedures for obtaining sufficient 

appropriate audit evidence. 

A commenter requested clarification 

regarding a statement made in the 2021 

SRC that AS 2101.06b requires the 

investor’s auditor to determine 

compliance with independence and 

ethics requirements of the investee’s 

auditor. It is not the Board’s intent to 

change practice with these amendments, 

but it should be noted that the investor’s 

auditor remains responsible for 

determining compliance with 

independence and ethics requirements 

for the entire audit, including work 

performed by the investee’s auditor. The 

Board believes that an investor’s auditor 

should determine whether the report of 

the investee’s auditor is satisfactory and 

may consider performing procedures, 

such as making inquiries as to the 

investee’s auditor’s independence in 

making this determination. 

Footnote 1 to AS 1105.B1 discusses 

procedures that the investor’s auditor 

may consider performing to determine 

whether the investee’s auditor’s report 

is satisfactory. One commenter 

suggested replacing the word ‘‘visiting’’ 

in the phrase ‘‘visiting the investee’s 

auditor’’ with the phrase ‘‘interacting 

(e.g., using video conferencing 

technology or visiting the other auditor) 

with.’’ 259 The commenter offered this 

alternate phrasing to recognize the 

current practice of using technology for 

remote access. Having considered the 

comment, the Board adopted the 

amendments as proposed. The word 

‘‘visiting’’ should not be interpreted as 

requiring a physical visit or as 

precluding a virtual visit through the 

use of technology. Additionally, the 

Board noted that the procedures in 

footnote 1 to AS 1105.B1 use the 

qualifier ‘‘may consider performing;’’ 

thus, the determination of the 

procedures to perform is at the 

discretion of the investor’s auditor. 

Another commenter opined that the 

amendments do not adequately address 

the nature and extent of work to be 

performed by the investor’s auditor, 

including the lack of consideration of 

knowledge, skill, and ability of the 

investee’s auditor, and noted that the 

standard used ‘‘reputation’’ as a 

consideration in footnote 1 to AS 

1105.B1. Access to the investee’s 

auditor is likely to impact an investor’s 

auditor’s ability to evaluate the 

knowledge, skill, and ability of an 

investee’s auditor. In addition, under 

the circumstances, inquiries about the 

reputation and standing of the investee’s 

auditor 260 may uncover issues regarding 

the professional competence of the 

investee’s auditor. Two commenters 

raised the issue of non-coterminous year 

ends, which one of the commenters 

characterized as ‘‘a common problem,’’ 

and noted a lack of clarity about the 

nature and extent of work to be 

performed by an investor’s auditor in 

this situation, particularly with respect 

to competence, independence, and 

oversight of an investee’s auditor. One 

of these commenters also raised the 

issue of differing reporting frameworks 

and auditing standards. 

The Board noted that the amendments 

are based on certain principles relating 

to the auditor’s responsibility for 

obtaining sufficient appropriate audit 

evidence. The amendments are designed 

to be flexible, considering a variety of 

situations that exist in practice 

involving an investee’s auditor. For 

example, in situations of noncoterminous year-ends, U.S. GAAP and 

IFRS allow for a consistent time lag 

between the fiscal year-ends of the 

investor and its equity method 

investees, which time lag would be 

reflected in the financial statements of 

the investor.261 The amendments 


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262See discussion above. In footnote 4 of AS 

1215.18, the final amendments do not include the 

proposed phrase ‘‘in certain circumstances’’ after 

the words ‘‘other related documents’’ because it is 

superfluous. 

263See AS 1220.09. 

264The corresponding requirements for the 

engagement partner are in AS 2101.06A–.06C. The 

amendments added a reference to these 

requirements and to the definitions of lead auditor, 

other auditor, and referred-to auditor in AS 2101, 

in a footnote to AS 1220.10a. 

265See AS 2101.06A. 

266See AS 1220.12. 

267See Auditing Standard on Communications 

with Audit Committee and Related Amendments to 

PCAOB Standards, PCAOB Release No. 2012–004 

(Aug. 15, 2012). 

268See 2017 SRC at 37. 

require obtaining sufficient appropriate 

audit evidence in support of the 

investee’s financial results, and provide 

examples of procedures that may need 

to be performed in addition to reviewing 

the investee’s auditor’s report. With 

regard to differing auditing standards, 

the investor’s auditor is responsible for 

planning and performing—in 

compliance with PCAOB standards—the 

audit of the investor’s financial 

statements (and, if applicable, internal 

control over financial reporting), 

including determining what constitutes 

sufficient appropriate audit evidence. 

After considering all of these 

comments, the Board adopted the 

amendments as proposed. 

Audit Documentation 

See Paragraphs .18–.19 to AS 1215 

Under existing AS 1215.18, the office 

of the firm issuing the auditor’s report 

is responsible for ensuring that all audit 

documentation sufficient to meet the 

relevant requirements is prepared and 

retained. 

As noted above, the amendments 

reinforce existing responsibilities of the 

other auditor to perform work with due 

care and in compliance with PCAOB 

standards. Specifically with respect to 

audit documentation, an amendment to 

AS 1215.18 reiterates that other auditors 

must comply with existing 

documentation requirements, 

specifically paragraphs .04–.17 of AS 

1215, including with respect to the 

audit documentation that the other 

auditor provides or makes accessible to 

the office issuing the auditor’s report. 

Additionally, the amendments to AS 

1215.18–.19 conform terminology 

relating to the use of the newly defined 

term ‘‘other auditor.’’ 262

A commenter on the 2021 SRC was 

supportive of the changes proposed in 

AS 1215.18 while another commenter 

suggested that the term ‘‘other offices of 

the firm’’ be revised in paragraphs .18– 

.19 to use another term to clarify that 

this concept should be applied to offices 

that are not the office of the firm issuing 

the auditor’s report. The Board 

considered this comment and 

determined that the requirements 

proposed are sufficiently clear, and 

adopted the requirements as proposed. 

Engagement Quality Review— 

Amendment to AS 1220 

See Paragraph .10a of AS 1220 

Existing PCAOB standards specify 

certain procedures the engagement 

quality reviewer should perform in 

evaluating the significant judgments 

made by the engagement team and the 

related conclusions reached in forming 

the overall conclusion on the 

engagement and in preparing the 

engagement report.263 In addition, the 

amendments to AS 1220 require the 

engagement quality reviewer, in an 

audit involving other auditors or 

referred-to auditors, to evaluate the 

engagement partner’s determination that 

the participation of the engagement 

partner’s firm is sufficient for the firm 

to carry out the responsibilities of a lead 

auditor and to report as such on the 

company’s financial statements and, if 

applicable, ICFR.264

Some commenters supported the 

amendment, while others opposed it, 

contending that the sufficiency-ofparticipation determination is not 

always a significant judgment and thus 

does not always warrant evaluation by 

the engagement quality reviewer. 

Having considered the comments 

received, the Board adopted the 

requirement as proposed. Although 

determining the sufficiency of a firm’s 

participation in the audit might not 

always be difficult or complicated, the 

decision that the firm can serve as lead 

auditor is always a significant judgment 

because it affects whether it is 

appropriate for the firm to issue the 

audit report.265 Therefore, evaluating 

the sufficiency-of-participation 

determination is important for the 

engagement quality reviewer’s 

conclusion about whether the lead 

auditor’s report is appropriate in the 

circumstances of a particular audit.266

Conforming Amendments and Other 

Relevant Considerations 

This section discusses conforming 

amendments and other considerations 

where significant comment was 

received as part of this rulemaking. The 

proposed rule text includes conforming 

amendments discussed in this section 

and other conforming amendments to 

PCAOB auditing standards, auditing 

interpretations, attestation standards, 

rules, and Form AP. 

Communications With Audit 

Committees 

See Paragraph .10e of AS 1301 

The 2021 SRC proposed to conform 

terminology in paragraph .10d of AS 

1301, Communications with Audit 

Committees, with new definitions. In 

particular, the standard would have 

used ‘‘other auditors’’ in lieu of 

‘‘independent public accounting firms 

or persons, who are not employed by 

the auditor.’’ Upon further 

consideration, the Board determined 

that the proposed amendment might not 

be consistent with the original intent of 

the requirement to communicate all 

participants in the audit to the audit 

committee.267

The change proposed in the 2021 SRC 

could have excluded, for example, 

individuals who work at shared service 

centers and are supervised by an other 

auditor, as these individuals would be 

subsumed by the replacement term 

‘‘other auditor.’’ To avoid unintended 

outcomes, the Board did not amend AS 

1301.10d. 

Separately, the Board made a 

conforming change to AS 1301.10e to 

add ‘‘referred-to auditors’’ to the phrase 

‘‘if significant parts of the audit are to 

be performed by other auditors.’’ The 

2017 SRC 268 restored the existing 

phrase in AS 1301.10e, ‘‘if significant 

parts of the audit are to be performed by 

[other auditors],’’ that would have been 

removed by the 2016 Proposal. No 

subsequent comment was received in 

this area, and the Board adopted the 

amendment to AS 1301.10e as proposed 

in the 2017 SRC. 

Certain Required Interactions With the 

Referred-to Auditor 

See Paragraph .53 of AS 2401 

The amendments to paragraph .53 of 

AS 2401, Consideration of Fraud in a 

Financial Statement Audit, conform 

terminology by replacing ‘‘other 

independent auditor’’ with ‘‘other 

auditors or referred-to auditors.’’ The 

amendments also replace ‘‘subsidiaries, 

divisions or branches’’ with ‘‘locations 

or business units, where applicable.’’ 

Further, the amendments include two 

new footnotes that refer to the 

definitions of ‘‘engagement team’’ and 

‘‘referred-to auditor’’ in Appendix A of 

AS 2101, as well as clarify the term 


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269The final amendments include ‘‘locations or 

business units, where applicable,’’ instead of only 

the term ‘‘business units.’’ 

270Such inquiries include inquiring about 

professional reputation and reviewing the work of 

another auditor. 

271Under rescinded AS 1205, for these 

circumstances the auditor who uses the audit may 

be in a position analogous to that of a principal 

auditor. See, e.g., AS 1205.14. 

272See 2017 SRC at 35. 

273The Board does not view the phrase ‘‘should 

give consideration’’ in existing AS 2601.19 as being 

different from ‘‘should consider,’’ which is the 

terminology used in auditing and related 

professional practice standards as defined in 

PCAOB Rule 3101. 

274See AI 10.04–.07; see also new paragraph .11A 

to AS 2110 in this document. The modifications 

address the format and terminology. 

275See, e.g., AS 2110.49–.51, which require 

discussion among engagement team members 

throughout the audit about significant matters 

affecting risks of material misstatement. 

276The Board corrected a footnote number in 

paragraph .28A of AS 2110. This footnote was 

incorrectly numbered as 16A in a previous 

rulemaking release, Amendments to Auditing 

Standards for Auditor’s Use of the Work of 

Specialists, PCAOB Release No. 2018–006 (Dec. 20, 

2018), and it is being changed to 16C to reflect 

correct sequential numbering of footnotes. This 

change does not affect the content of the footnote. 

277 In addition to the new paragraph, .11A, in AS 

2110, see above for technical amendments to (i) AS 

2110.13 and .28A (changing the numbering of two 

footnotes, to eliminate duplication) and (ii) AS 

2110.64 (adding a footnote reference to AS 2101.11 

and .12, to highlight relevant existing requirements 

for multi-location engagements). 

278See 2016 Proposal at A3–32. 

279See Question 58 in the 2016 Proposal at A4– 

62. 

280See 2017 SRC at 36. 

‘‘business units,’’ used in the revised 

paragraph. 

A commenter stated that this 

amendment would go beyond current 

practice for the division of 

responsibility. Having considered the 

commenter’s view, the Board adopted 

the amendments to AS 2401 

substantially as proposed.269 The Board 

believes that the amendment does not 

substantively change the example in AS 

2401.53, but merely updates the 

terminology, aligning it with other 

amendments in this release. 

Amendments Relating to Certain 

Inquiries and Procedures Concerning 

Another Auditor 

Several PCAOB standards refer to AS 

1205.10–.12 when describing certain 

inquiries and procedures concerning 

another auditor 270 whose audit report is 

used as audit evidence in the audit of 

a company’s financial statement (such 

as the audit report of a service auditor 

or predecessor auditor). In the majority 

of these circumstances, the auditor 

whose report is used in this manner is 

neither supervised by the lead auditor 

under AS 1201 nor serving as another 

independent auditor under AS 1205.271

These amendments are amending the 

standards that refer to rescinded AS 

1205.10–.12 by incorporating the 

relevant statements from those 

paragraphs into the text of the 

standards, as was the approach in the 

2016 Proposal. The Board discussed 

comments received on the 2016 

Proposal in the 2017 SRC and made no 

modifications to the proposed 

amendments.272

A commenter on the 2021 SRC 

believed that the conforming 

amendment to AS 2601.19 would result 

in a change to the meaning and related 

user auditor performance requirement. 

This commenter suggested revisions to 

the language to highlight that the user 

auditor ‘‘may give consideration to’’ 

performing the procedures. The Board 

believes that the conforming 

amendment does not change the 

meaning of the requirement, and that it 

is sufficiently clear.273 The amendment 

states that ‘‘the user auditor should 

consider performing one or more of the 

[listed] procedures.’’ This language is 

incorporated in several locations, e.g., 

AS 2201.B23; paragraphs .18–.19 of AS 

2601, Consideration of an Entity’s Use 

of a Service Organization; footnote 8 to 

paragraph .12 of AS 2610, Initial 

Audits—Communications Between 

Predecessor and Successor Auditors; 

and AS 3105.55. 

The Board adopted the amendments 

as proposed. 

Rescinding AI 10, Part of the Audit 

Performed by Other Independent 

Auditors: Auditing Interpretations of AS 

1205 

The amendments (i) rescind AI 10, the 

auditing interpretations of AS 1205; and 

(ii) carry forward, with modifications, as 

an amendment to AS 2110, a provision 

in AI 10 that the other accounting firm 

should consider inquiring of the lead 

auditor about matters that may be 

significant to the other accounting firm’s 

own audit (e.g., executive compensation 

arrangements).274

Situations in which the lead auditor 

divides responsibility for the audit with 

a referred-to auditor are governed by the 

new standard, AS 1206. The new 

standard requires, among other things, 

that the lead auditor communicate with 

the referred-to auditor and determine 

that audit procedures are properly 

performed, in coordination with the 

referred-to auditor, with respect to the 

consolidation or combination of the 

financial statements of the business 

units audited by the referred-to auditor 

into the company’s financial statements. 

For situations in which the lead auditor 

supervises the work of the other 

accounting firm, the other auditor’s 

inquiry of the lead auditor is addressed 

by existing standards.275 For situations 

in which the lead auditor divides 

responsibility for the audit with the 

other accounting firm, an amendment to 

AS 2110 carries forward, with 

modifications, the existing requirement 

in AI 10 for the referred-to auditor’s 

inquiries of the lead auditor as to 

matters that may be significant to the 

referred-to auditor’s own audit.276

Some commenters on the 2016 

Proposal viewed rescinding AI 10 as 

appropriate, and some others suggested 

carrying forward all or certain portions 

of the guidance in AI 10, including the 

amendment the Board is making to AS 

2110. A commenter on the 2021 SRC 

stated that the conforming amendment 

to AS 2110.11A was not consistent with 

the provisions of existing AS 1205.10 

since, it asserted, AS 2110.11A goes 

beyond current practice. The Board 

rescinded AI 10, as originally proposed. 

The AI 10 direction for the lead auditor 

is based on the limited procedures in 

AS 1205, which the Board rescinded. 

The provision addressed to the referredto auditor in AI 10.04–.07 was carried 

forward to AS 2110.11A, as noted 

above.277

Interim Reviews 

See Paragraphs .18b, .39–.40, and .52 of 

AS 4105 

The Board adopted conforming 

amendments to AS 4105, Reviews of 

Interim Financial Information. The 2016 

Proposal included conforming 

amendments to that standard 278 and 

requested comment on whether 

additional changes to the standards 

were needed for reviews of interim 

financial information that involve other 

auditors or referred-to auditors.279 Three 

commenters who responded to this 

question briefly expressed support for 

addressing interim reviews in the 

amendments but did not specify any 

recommended changes. Another 

commenter stated that any additional 

requirements should be scalable because 

the scope of an interim review is 

substantially less than that of an audit. 

The 2017 SRC discussed the 

comments received on this topic, stated 

the Board’s intent to adopt conforming 

amendments to AS 4105, and asked for 

any additional comment.280 No further 

comments were submitted on this topic 

in response to the 2017 SRC or 2021 

SRC. 

Having considered the comments 

received, the Board adopted conforming 

amendments to AS 4105 to 

appropriately reflect changes to other 


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281For attestation engagements in conjunction 

with Exchange Act Rule 17a–5, 17 CFR 240.17a–5, 

the supervision requirements of Attestation 

Standard No. 1, Examination Engagements 

Regarding Compliance Reports of Brokers and 

Dealers, or Attestation Standard No. 2, Review 

Engagements Regarding Exemption Reports of 

Brokers and Dealers, apply to the supervision of the 

work of other auditors. See Standards for 

Attestation Engagements Related to Broker and 

Dealer Compliance or Exemption Reports Required 

by the U.S. Securities and Exchange Commission 

and Related Amendments to PCAOB Standards, 

PCAOB Release No. 2013–007, at A4–30 (Oct. 10, 

2013). 

282See PCAOB Rule 1001(p)(ii) (defining the 

phrase ‘‘play a substantial role in the preparation 

or furnishing of an audit report’’). 

283Firms that conduct non-issuer audits in 

accordance with PCAOB standards, including 

audits of brokers and dealers reporting under 

Exchange Act Rule 17a–5, are not required to file 

a report on Form AP regarding such audits. See 

Staff Guidance: Form AP, Auditor Reporting of 

Certain Audit Participants, and Related Voluntary 

Audit Report Disclosure Under AS 3101, The 

Auditor’s Report on an Audit of Financial 

Statements When the Auditor Expresses an 

Unqualified Opinion (Dec. 17, 2021), at 3. Thus, 

unlike in the case of audits of issuers (including 

EGCs), Form AP data on the extent of use of other 

auditors and referred-to auditors in audits of 

brokers and dealers is not available. 

PCAOB standards in this rulemaking 

and preserve the scalable approach to 

interim reviews. The conforming 

amendments have been revised from the 

form in which they were proposed in 

2016. As adopted, footnote 11 to AS 

4105.18b clarifies that, if an accountant 

(i.e., auditor) who conducts a review of 

interim financial information obtains a 

report from another accountant engaged 

to conduct a review of interim financial 

information of significant components 

of the reporting entity or its other 

business units, the accountant that 

obtains the report is ordinarily in a 

position similar to that of, as applicable, 

(i) a lead auditor that obtains the results 

of the work of an other auditor (see 

generally AS 1201 (audit supervision) 

and AS 2101 (audit planning)) or (ii) an 

investor’s auditor that obtains a report 

from an investee’s auditor (see generally 

Appendix B of AS 1105 (audit 

evidence)). 

Application to Audits of Brokers and 

Dealers 

The amendments, if approved by the 

SEC, will apply to audits of brokers and 

dealers as defined in Sections 110(3)–(4) 

of Sarbanes-Oxley.281 The proposing 

releases solicited comment on such 

applicability. No commenters opposed, 

and several commenters supported, 

applying the amendments to audits of 

brokers and dealers. In response to the 

2021 SRC, one commenter said that it 

was not aware of any strong arguments 

that would indicate that the audits of 

brokers and dealers should be excluded 

from the application of the proposed 

amendments, and the commenter 

expressly supported applying the 

proposed amendments to audits of 

brokers and dealers. One commenter 

said that it did not believe that the 

revisions discussed in the 2021 SRC 

presented specific issues regarding 

audits of brokers and dealers. 

As the Board noted in the 2016 

Proposal, the auditing standards that 

currently govern the use of other 

auditors and referred-to auditors in 

audits of brokers and dealers are the 

same as those for audits of issuers. The 

application of the amendments to audits 

of brokers and dealers will continue this 

approach. 

Staff analysis of PCAOB inspections 

data for audits of brokers and dealers 

indicates that there are no brokers or 

dealers that are currently issuers, 

although some of the largest brokers and 

dealers are subsidiaries of issuers. 

Information from PCAOB inspections 

and from annual reports filed by 

registered firms indicates that other 

auditors played a substantial role 282 in 

a small number of audits of brokers and 

dealers.283 Further, information 

obtained by PCAOB staff has not 

identified any audits of brokers and 

dealers in which the lead auditor 

divided responsibility for the audit with 

another accounting firm. 

The Board’s determination that the 

amendments will apply to audits of 

brokers and dealers is based on the 

observation that auditing plays a key 

role in enhancing the reliability of 

financial information provided by 

brokers and dealers, which is important 

to investor protection. The audit of 

brokers and dealers is intended to 

mitigate problems related to information 

asymmetry between customers of 

brokers and dealers, who use the 

services of brokers and dealers to invest 

in securities and other financial 

instruments, and management of 

brokers and dealers, who prepare 

financial information. This information 

asymmetry between customers and 

management of brokers and dealers may 

be significant. Customers of brokers and 

dealers are likely to be numerous, 

geographically distributed, and not 

expert in the management or operation 

of brokers and dealers. This information 

asymmetry makes the role of auditing 

important in enhancing the reliability of 

financial information. In addition, the 

audit of brokers and dealers may also 

help attenuate information asymmetry 

between management of brokers and 

dealers and other users of financial 

statements, such as counterparties and 

regulatory authorities. 

The amendments are not expected to 

have a widespread impact on the audits 

of brokers and dealers that are not 

subsidiaries of issuers, since there are 

likely few instances in which such 

audits involve the use of other auditors. 

However, in those instances in which 

other auditors are used, the expected 

improvements in audit quality 

described above will benefit the 

customers of the broker or dealer, along 

with investors and the capital markets. 

Because of the scalability of the riskbased requirements, the costs of 

performing the procedures are unlikely 

to be disproportionate to the benefits of 

the procedures. 

Effective Date 

The Board has determined that the 

amendments will take effect, subject to 

approval by the SEC, for audits of 

financial statements for fiscal years 

ending on or after December 15, 2024. 

In the proposing releases, the Board 

sought comment on the amount of time 

auditors would need before the 

proposed amendments would become 

effective, if adopted by the Board and 

approved by the SEC. A number of 

commenters on the 2021 SRC 

recommended that the Board provide an 

effective date at least two years after 

Board adoption and SEC approval. 

Some preferred, if SEC approval were to 

occur in the last half or quarter of the 

year, an effective date at least three 

years afterwards. In support of the time 

needed before effectiveness, 

commenters offered that audit firms will 

need enough time to implement the 

amended standards throughout the firm 

(such as through methodology, tools, 

guidance, quality control system 

changes, and training) and to discuss 

and coordinate implications of the 

amendments with other auditors and 

referred-to auditors. Some commenters 

also stated that because the amendments 

relate to matters that occur at the 

beginning of the audit, the 

implementation needs to occur before 

the beginning of the fiscal year of the 

financial statements to be audited. 

The Board recognized the preferences 

expressed by commenters. It also 

appreciated the efforts already 

undertaken by many audit firms to raise 

their standards of practice in advance of 

the adoption of these amendments. The 

effective date the Board adopted is 

designed to provide all auditors with a 

reasonable period of time to implement 

the amendments, without unduly 

delaying the intended benefits resulting 


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Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39717 

284See Auditing Accounting Estimates, Including 

Fair Value Measurements and Amendments to 

PCAOB Auditing Standards, PCAOB Release No. 

2018–005 (Dec. 20, 2018) (providing an effective 

date approximately one year after PCAOB 

adoption); Amendments to Auditing Standards for 

Auditor’s Use of the Work of Specialists, PCAOB 

Release No. 2018–006 (Dec. 20, 2018) (same). 

285See 2016 Proposal at 30–49; 2017 SRC at 42; 

2021 SRC at 62. 

286See https://pcaobus.org/resources/ 

auditorsearch. See also Improving the Transparency 

of Audits: Rules to Require Disclosure of Certain 

Audit Participants on a New PCAOB Form and 

Related Amendments to Auditing Standards, 

PCAOB Release No. 2015–008 (Dec. 15, 2015). Form 

AP provides information on other accounting firms, 

but not individual accountants at those firms. 

Hence, the terms ‘‘other auditors’’ and ‘‘referred-to 

auditors’’ in the analysis presented in this section 

refer only to accounting firms. 

287See 2016 Proposal at 6. 

288See id. at 6 note 4. 

289See id. at 7. 

290See id. at 6–7 and note 5 (noting that in audits 

selected by the PCAOB for inspection in 2013 and 

2014 that involved other auditors, the other 

auditors audited on average between one-third and 

one-half of the total assets and total revenues of the 

company being audited). 

291See 2021 SRC at 49–55 (providing data based 

on Form AP filings in 2020). The analysis of Form 

AP data presented in Figures 2, 3, and 4 is limited 

to issuers other than investment company vehicles 

and employee benefit plans. 

from these improvements to PCAOB 

standards.284

D. Economic Considerations and 

Application to Audits of Emerging 

Growth Companies Economic Analysis 

The Board is mindful of the economic 

impacts of its standard setting. This 

economic analysis describes the 

economic baseline, economic need, 

expected economic impacts of the 

amendments, and alternative 

approaches considered. Because there 

are limited data and research findings 

available to estimate quantitatively the 

economic impacts of the amendments, 

the Board’s economic discussion is 

qualitative in nature. However, where 

practicable, the analysis incorporates 

quantitative information, including 

analysis of Form AP data and PCAOB 

inspections findings. 

The Board sought information 

relevant to the economic analysis over 

the course of this rulemaking.285 To the 

extent that commenters expressed views 

related to the economic analysis, 

commenters generally found the 

economic analysis in the 2016 Proposal 

and the discussion of economic topics 

in the 2017 and 2021 SRCs to be 

reasonable. Commenters did not provide 

additional quantitative data or research 

that could be used in the analysis. The 

Board considered all comments received 

and has developed the following 

economic analysis that evaluates the 

expected benefits and costs of the final 

amendments, discusses potential 

unintended consequences, and 

facilitates comparison to alternative 

actions considered. 

Baseline 

The discussion above describes 

current PCAOB standards that apply 

specifically when other auditors and 

referred-to auditors participate in an 

audit and the influence of other 

standard setters on audit practice in this 

area. This section expands on that 

discussion by describing the economic 

baseline against which the impact of the 

amendments can be considered. 

Specifically, this section: 

• Discusses the extent of the use of 

other auditors and referred-to auditors 

by analyzing data in AuditorSearch, 

which is the PCAOB’s public Form AP 

database.286

• Summarizes auditing practices 

related to the use of other auditors and 

referred-to auditors, including PCAOB 

staff analysis of audit firm 

methodologies and data on deficiencies 

in audits that involve other auditors. 

• Provides a concise survey of 

academic research on the use of other 

auditors and its impact on audit quality. 

Extent of the Use of Other Auditors and 

Referred-to Auditors 

As discussed in the 2016 Proposal, 

many companies have significant 

operations in jurisdictions outside the 

country or region of the lead auditor.287

Audits of such multinational businesses 

often require the participation of 

accounting firms other than the lead 

auditor and can often involve multiple 

other firms.288 The use of other auditors 

is also more prevalent in audits of larger 

companies audited by larger accounting 

firms.289 In addition, work performed by 

other auditors can comprise a 

significant share of a given audit.290

Observations in the 2016 Proposal 

regarding the use of other auditors and 

referred-to auditors are confirmed by 

more specific information that the 

PCAOB has subsequently received and 

made available to the public on its 

website. After June 30, 2017, registered 

public accounting firms began to report 

certain information about the 

participation of other accounting firms 

in audits on PCAOB’s Form AP. Figures 

2, 3, and 4 present staff analysis of Form 

AP filings between January 1, 2021, and 

December 31, 2021, and update similar 

information presented in the 2021 

SRC.291


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39718 Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 

292 Global network firms (‘‘GNFs’’) are the 

member firms of the six global accounting firm 

networks that include the largest number of 

PCAOB-registered non-U.S. firms (BDO 

International Ltd., Deloitte Touche Tohmatsu Ltd., 

Ernst & Young Global Ltd., Grant Thornton 

International Ltd., KPMG International Cooperative, 

and PricewaterhouseCoopers International Ltd.). 

The discussion in this release uses ‘‘U.S. GNF’’ to 

refer to a GNF member firm based in the United 

States, and ‘‘non-U.S. GNF’’ to refer to a GNF 

member firm based outside the United States. Nonaffiliate firms (‘‘NAFs’’) are both U.S. and non-U.S. 

accounting firms registered with the Board that are 

not GNFs. Some of the NAFs belong to international 

networks. 

293 Disclosures on Form AP include the name, 

extent of participation, and headquarters location of 

an other accounting firm that participated in an 

audit and contributed 5% or more of the total audit 

hours. For firms that contributed less than 5% of 

the total audit hours, the number of firms and their 

aggregate extent of participation is disclosed. Form 

AP reporting is required not only in situations 

when an other accounting firm performed part of 

an audit under AS 1201 or AS 1205, but also when 

the personnel of an other accounting firm, but not 

the firm itself, was involved in the lead auditor’s 

audit. See Form AP, Item 3.2 (Note) (providing that 

an other accounting firm participated in the lead 

auditor’s audit for Form AP reporting purposes if 

any of its principals or professional employees was 

subject to supervision under AS 1201). Thus, not 

all of the audits in the table may have involved, and 

not all of the firms in the table may have been, other 

auditors that performed part of the audit under AS 

1205 or were themselves supervised under AS 

1201. 

294The 2021 SRC presented data showing that 

other firms were involved in about 30 percent of all 

issuer audit engagements. See 2021 SRC at 51. The 

change from 30 percent in the 2021 SRC to 26 

The statistics presented in Figure 2 

describe the percentage of issuer audits 

that use other firms and the maximum 

number of other firms used in an 

individual audit, based on 2021 Form 

AP filings. The results are largely 

consistent with the 2020 Form AP data 

presented in the 2021 SRC and indicate 

that other firms are involved in many 

audits of issuers. 

Overall, other firms are involved in 

about 26 percent of all issuer audit 

engagements.294 Their use is especially 


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• I 

All issuer audits 

By audit firm type292 

U.S.GNF 

Non-U.S. GNF 

U.S.NAF 

Non-U.S. NAF 

By issuer domicile 

U.S. issuers 

Non-U.S. issuers 

By issuer size 

Fortune 500 issuers 

Large accelerated filers 

Accelerated filers 

Non-accelerated filers 

• I I I. 

Prrcrntagr of audits 

that usr othrr auditors 

I 26% 

39% 

58% 

7% 

13% 

23% 

41% 

68% 

57% 

36% 

12% 

Maximum numhrr 

of othrr auditors 

usrd in an audit 

63 

27 

63 

10 

17 

27 

63 

27 

63 

14 

21 

Sources: 2021 Form AP data obtained from PCAOB's AuditorSearch database; issuer groups 

determined using data from Audit Analytics and Standard & Poor's. 

Note: The term "other auditors" as used in this table includes referred-to auditors and refers only 

to other accounting firms and not individual accountants at those firms. 293 
Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39719 

percent in this release appears to be mostly due to 

the recent increase in special purpose acquisition 

company audits, which rarely involve the 

participation of other firms. Between 2018 (the first 

full year of Form AP data) and 2020 (the year 

presented in the 2021 SRC), the percentage of audits 

that use other firms remained relatively stable. 295For an explanation of accelerated filer criteria, 

see https://www.sec.gov/corpfin/secg-acceleratedfiler-and-large-accelerated-filer-definitions. 

296Form AP data also indicates that when 

multiple other auditors are used, it is common for 

the other auditors to be located in multiple 

countries outside the lead auditor’s country. 

common in audits performed by firms 

that are members of global networks; 

about 39 percent of U.S. GNF 

engagements and about 58 percent of 

non-U.S. GNF engagements involved the 

use of other firms. In comparison, only 

about seven percent of U.S. NAF and 13 

percent of non-U.S. NAF audit 

engagements involved other firms. 

When analyzed from the perspective 

of the domicile of the issuer, other firms 

are involved in about 23 percent of 

audit engagements of issuers domiciled 

in the U.S., and about 41 percent of 

audit engagements of issuers domiciled 

outside the U.S. Alternately, when 

analyzed by issuer size, other firms are 

involved in about 68 percent of Fortune 

500 issuer audits and about 57 percent 

of large accelerated filer audits.295 In 

contrast, only about 36 percent of 

accelerated filer audits and about 12 

percent of non-accelerated filer audits 

involved the use of other firms. 

Some issuer audits involve many 

other firms, particularly when the issuer 

is large. For example, the audit of one 

Fortune 500 issuer involved 27 other 

firms and the audit of one large 

accelerated filer involved 63. By 

contrast, the maximum number of other 

firms used on an audit of an accelerated 

filer and a non-accelerated filer was 

somewhat lower, at 14 and 21 other 

firms, respectively. The maximum 

number of other firms used is highest 

for issuer audits conducted by GNFs. 

For example, one non-U.S. GNF audit 

involved 63 other firms and one U.S. 

GNF audit used 27. Non-affiliated firms 

can also use multiple other firms when 

conducting issuer audits; on one audit 

a non-U.S. NAF used 17 other firms and 

one U.S. NAF audit involved 10. 

The statistics shown in Figure 3 

describe how often more than one other 

firm is used when an audit involves 

such use, based on 2021 Form AP 

filings. The results are largely consistent 

with the 2020 Form AP data presented 

in the 2021 SRC and indicate that when 

other firms are used, it is common that 

multiple other firms are used.296 For 

example, among all issuer audits 

involving the use of other firms, about 

61 percent involved two or more other 

firms, about 28 percent involved five or 

more, about 11 percent involved ten or 

more, and about two percent involved 

twenty or more. When examined by the 

domicile of the issuer, the results are 

similar. 


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All issuer audits 

By audit firm 

type 

U.S.GNF 

Non-U.S. GNF 

U.S.NAF 

Non-U.S. NAF 

By issuer 

domicile 

U.S. issuers 

Non-U.S. issuers 

61% 

66% 

71% 

19% 

34% 

61% 

64% 

28% 11% 2% 

32% 11% 1% 

31% 16% 4% 

2% 0% 0% 

5% 5% 0% 

28% 9% 1% 

29% 14% 4% 

Sources: 2021 Form AP data obtained from PCAOB's AuditorSearch database; issuer groups 

determined using data from Audit Analytics. 

Note: The term "other auditors" as used in this table includes referred-to auditors and refers only 

to other accounting firms and not individual accountants at those firms. 
39720 Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 

297Using a higher threshold of other firms’ 

involvement (50 percent of total audit hours) would 

further reduce the percentages reported in Figure 4. 

Specifically, in audits of issuers that involved other 

firms, other firms performed more than 50 percent 

of total audit hours in about six percent of all issuer 

audits, about two percent of U.S. GNF audits, about 

16 percent of non-U.S. GNF audits, about four 

percent of U.S. NAF audits, and about 29 percent 

of non-U.S. NAF audits. 

When examined by audit firm type, 

the data shows that GNFs tend to use 

more other firms than NAFs do. For 

example, in issuer audits conducted by 

U.S. GNFs that involved other firms, 

about 66 percent involved two or more 

other firms, about 32 percent involved 

five or more, about 11 percent involved 

ten or more, and about one percent 

involved twenty or more. Similarly, in 

audit engagements of issuers conducted 

by non-U.S. GNFs that involved other 

firms, about 71 percent involved two or 

more other firms, about 31 percent 

involved five or more, about 16 percent 

involved ten or more, and about four 

percent involved twenty or more. By 

contrast, in audit engagements of issuers 

conducted by U.S. NAFs that involved 

other firms, only about 19 percent 

involved two or more other firms, and 

about two percent involved five or 

more. In audit engagements of issuers 

conducted by non-U.S. NAFs that 

involved other firms, about 34 percent 

involved two or more other firms, and 

about five percent involved five or 

more. 

The statistics presented in Figure 4 

describe the share of audit work 

performed by other firms, based on 2021 

Form AP filings. The other firms’ share 

of total audit hours provides a simple 

measure of the significance of their 

work, but may not reflect the level of 

risk associated with that work. The 

results are largely consistent with the 

2020 Form AP data presented in the 

2021 SRC and show that work 

performed by other firms can, however, 

account for a significant share of the 

audit. To illustrate this finding, consider 

the following data regarding the 

frequency with which other firms’ hours 

exceeded a relatively lower (10 percent 

of total audit hours) and relatively 

higher (30 percent) threshold of other 

auditor involvement. 


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All issuer audits 52% 19% 

By audit firm type 

U.S.GNF 52% 13% 

Non-U.S. GNF 58% 34% 

U.S.NAF 37% 18% 

Non-U.S. NAF 63% 41% 

By issuer domicile 

U.S. issuers 48% 12% 

Non-U.S. issuers 61% 35% 

Sources: 2021 Form AP data obtained from PCAOB's AuditorSearch database; issuer groups 

determined using data from Audit Analytics. 

Note: The term "other auditors" as used in this table includes referred-to auditors and refers only 

to other accounting firms and not individual accountants at those firms. 
Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39721 

298A Part I.A deficiency is identified through 

inspection and included in a PCAOB inspection 

report when it is ‘‘of such significance that the 

Board believes that the firm, at the time it issued 

its audit report, had not obtained sufficient 

appropriate audit evidence to support its opinion 

on the issuer’s financial statements and/or ICFR.’’ 

See PCAOB, PCAOB Inspection Procedures: What 

Does the PCAOB Inspect and How Are Inspections 

Conducted?, available at https://pcaobus.org/ 

oversight/inspections/inspection-procedures. 

Looking first at the relatively lower 

threshold of involvement, in audits of 

issuers that involved other firms, other 

firms performed more than 10 percent of 

total audit hours in about 52 percent of 

all issuer audits, about 52 percent of 

U.S. GNF audits, about 58 percent of 

non-U.S. GNF audits, about 37 percent 

of U.S. NAF audits, and about 63 

percent of non-U.S. NAF audits. When 

examined by the domicile of the issuer, 

other firms performed more than 10 

percent of the total audit hours in about 

48 percent of audits of issuers domiciled 

in the U.S., and about 61 percent of 

audits of issuers domiciled outside the 

U.S. 

Turning to the relatively higher 

threshold of involvement, in audits of 

issuers that involved other firms, other 

firms performed more than 30 percent of 

the total audit hours in about 19 percent 

of all issuer audits, about 13 percent of 

U.S. GNF audits, about 34 percent of 

non-U.S. GNF audits, about 18 percent 

of U.S. NAF audits, and about 41 

percent of non-U.S. NAF audits. Other 

firms performed more than 30 percent of 

the total audit hours in about 12 percent 

of audits of issuers domiciled in the 

U.S., and about 35 percent of audits of 

issuers domiciled outside the U.S. 

Auditing Practice Related to the Use of 

Other Auditors and Referred-to Auditors 

PCAOB Staff Analysis of Audit 

Methodologies 

PCAOB staff has reviewed the 

methodologies of firms related to the 

use of other auditors and referred-to 

auditors. Specifically, the staff 

compared methodologies of GNFs and 

methodologies commonly used by 

smaller U.S. firms to current PCAOB 

standards and the amendments. The 

staff performed this analysis to 

understand the extent to which firms 

would need to update their 

methodologies to implement the 

amendments and new standard. 

In general, the staff observed that the 

methodologies of larger firms already 

incorporate some of the concepts 

included in the amendments and new 

standard. For example, methodologies 

of larger firms increasingly emphasize 

the responsibility of the lead auditor for 

overseeing the work of other auditors 

using a risk-based approach. Some 

larger firms have also made changes to 

their audit methodologies in recent 

years to encourage a greater level of 

supervision by the lead auditor, such as 

more frequent and comprehensive 

communications with other auditors 

and review of other auditors’ work 

papers in areas of significant risk. Larger 

firms have also continued to issue 

practice alerts, templates, and other 

guidance to emphasize that the lead 

auditor should be sufficiently involved 

in the work of other auditors. Smaller 

U.S. firms’ methodologies generally do 

not require the lead auditor to perform 

or consider supervisory procedures 

beyond the requirements of AS 1205. 

The staff’s analysis of audit 

methodologies also identified variation 

in the extent to which larger firms have 

already incorporated the amendments 

and new standard in their 

methodologies. For example, the staff 

observed that some larger firms’ 

methodologies do not yet incorporate 

the amendments to supervisory 

procedures in multi-tiered audits or the 

amendments to AS 1220 regarding 

engagement quality reviews. Similarly, 

many firms may need to revise their 

approaches to determining whether the 

firm’s participation in an audit is 

sufficient for it to serve as lead auditor. 

Commenters on the 2016 Proposal 

who addressed audit methodologies 

regarding the use of other auditors and 

referred-to auditors generally agreed 

that the Proposal accurately described 

existing audit practices. Some of those 

commenters indicated that many firms, 

particularly larger and mid-size firms, 

have updated their methodologies to 

comply with the relevant standards of 

the PCAOB, IAASB, and ASB. Another 

commenter indicated that firms utilize a 

range of approaches to group audits to 

address the varied business structures of 

their audit clients. 

A commenter on the 2021 SRC 

observed the increased use of 

technology in auditing, which 

accelerated in response to the global 

COVID–19 pandemic. Some stated that, 

as a result of the use of technology, 

audit firms increasingly digitize their 

documentation and are able to 

communicate more efficiently. Others 

observed that the increased use of 

technology has permitted the remote 

performance of audit work, and that 

physical location is not as important as 

it was previously. One commenter noted 

changes in the management of audits, 

including the increased use of shared 

service centers and the existence of 

more complex group audit structures. 

Some commenters, however, stated that 

they had not seen significant changes in 

auditor practices related to the use of 

other auditors. 

Deficiencies in Audits Involving Other 

Auditors 

Previous discussion in this release 

describes observations from recent 

PCAOB inspections and PCAOB and 

SEC enforcement cases related to the 

work of other auditors and lead 

auditors. This section supplements the 

discussion by describing data regarding 

deficiencies in work performed by other 

auditors (or ‘‘referred work 

engagements’’). 

Over the last decade, PCAOB 

inspections staff has observed Part I.A 

deficiencies 298 in roughly 25 to 45 

percent of referred work engagements 

selected for review. As shown in Figure 

5, following a peak deficiency rate in 

2012 and 2013 of approximately 40 

percent, deficiency rates declined and 

have remained relatively consistent 

since then at approximately 30 percent. 


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39722 Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 

299See 2016 Proposal at 29–30 and notes 61–64; 

see also 2021 SRC at 55 and note 147. 

300See 2016 Proposal at 29 note 61. 

301See 2016 Proposal at 29 note 61; see also 2021 

SRC at 56 notes 148–149 (citing academic research); 

see also Elizabeth Carson, Roger Simnett, Ulrike 

Thu ̈rheimer, and Ann Vanstraelen, Involvement of 

Component Auditors in Multinational Group 

Audits: Determinants, Audit Quality, and Audit 

Fees (2022) (accepted for publication in Journal of 

Accounting Research; available at https://doi.org/ 

10.1111/1475-679X.12418) (‘‘[I]nvolvement of 

component auditors benefits audit quality as long 

as the principal auditor conducts a substantial 

amount of work. Once the involvement of 

component auditors exceeds a certain level, audit 

quality decreases.’’). 

302See 2016 Proposal at 30–33 and notes 66–73. 

303The term ‘‘market failure’’ refers to a situation 

in which markets fail to function efficiently. See 

2016 Proposal at 31 note 67. 

304See 2016 Proposal at 37 note 78. 

Academic Research on the Use of Other 

Auditors 

As discussed above, audits involving 

other auditors often use other auditors 

located in different countries, and may 

use multiple other auditors, particularly 

in audits of multinational companies. 

Academic research on the challenges of 

distributed work (but not exclusively on 

auditing) finds that coordination and 

communication problems may arise 

when: (i) work is conducted by teams 

distributed across cities, countries, or 

continents; (ii) there are differences in 

language, culture, or regulation; or (iii) 

teamwork is required that involves a 

number of interdependent activities.299

If the cost to the auditor of 

overcoming these challenges (e.g., 

through additional supervision of other 

auditors) exceeds the lead auditor’s 

perception of the benefits of doing so 

(e.g., in terms of reduced risks of 

litigation, reputational loss, and 

regulatory sanction, as a result of 

improving audit quality), then audit 

quality may suffer.300 The impact on 

audit quality could be especially 

significant because the lead auditor 

makes important decisions about how 

the audit is performed, including 

whether the lead auditor performs a 

sufficient portion of the audit to issue 

the audit report. 

Although relatively few empirical 

studies have explicitly examined the 

relationship between the use of other 

auditors and audit quality, several 

papers have been published recently 

that shed light on this issue. This 

growing body of research suggests that 

there is a relationship between the use 

of other auditors and audit quality, and 

that the facts and circumstances of the 

audit may be influential in determining 

whether this is a positive or negative 

relationship.301

Need 

This section discusses the problem 

that the amendments are intended to 

address and explains how the 

amendments are expected to address it. 

Specifically, an incentive problem may 

arise from information asymmetries 

between investors and the lead auditor 

and between the lead auditor and other 

auditors, among other factors. The 

amendments will help address the 

problem by increasing the 

accountability of the lead auditor and 

requiring a more uniform, risk-based 

approach to the lead auditor’s planning 

and supervision of the work of other 

auditors. The amendments aim to clarify 

and strengthen the lead auditor’s 

planning and supervisory requirements 

to provide lead auditors with better 

direction and a stronger regulatory 

incentive to more consistently produce 

high quality audits when using other 

auditors. The amendments will increase 

the lead auditor’s involvement in, and 

evaluation of, the work of other 

auditors, enhance the ability of the lead 

auditor to prevent or detect deficiencies 

in the work of other auditors, and 

facilitate improvements in the quality of 

the work of other auditors. 

Problem To Be Addressed 

As discussed in the 2016 Proposal, 

incentive problems may arise from 

information asymmetry between 

investors and the lead auditor.302

Specifically, in audits involving other 

auditors, a market failure 303 may be 

caused, at least in part, by an 

information asymmetry between 

investors and the lead auditor regarding 

the lead auditor’s effort in supervising 

other auditors. Investors, for example, 

may be uncertain about the procedures 

performed by the lead auditor to oversee 

the work of other auditors, leading to 

uncertainty about audit quality and the 

risks associated with the use of other 

auditors. The uncertainty may reduce 

public confidence in financial 

information, decrease the efficiency of 

capital allocation decisions, and 

increase the cost of capital.304

Because of this information 

asymmetry and other factors such as 

cost considerations, the lead auditor 

may not be adequately motivated to (i) 

gather information about the 

competence of, and work performed by, 


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Figure 5. Percentage of Referred Work Engagements with a Part I.A 

Deficienc 

45% 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

2011 2012 2013 2014 2015 2016 2017 2018 

--All Firms - e - Non-US GNF 

2019 
Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39723 

305The term ‘‘moral hazard’’ refers to a situation 

in which an agent could take actions (such as not 

putting forth sufficient effort) that are difficult for 

the principal to monitor and would benefit the 

agent at the expense of the principal. See 2016 

Proposal at 31 note 69; Amendments to Auditing 

Standards for Auditor’s Use of the Work of 

Specialists, PCAOB Release No. 2018–006 (Dec. 20, 

2018), at 40–42. 

306See 2021 SRC at 61. 

307See 2016 Proposal at 19–21. 

308See 2016 Proposal at 35 note 75 (citing 

academic research). 

309See 2021 SRC at 61 note 175. 

310The amendments for the planning and 

supervision of other auditors also include 

provisions, in AS 1201 and AS 2101, that are 

designed to make the standard scalable for multitiered audits in which the lead auditor may seek 

assistance from a first other auditor in supervising 

second other auditors. 

the other auditor, or (ii) monitor and 

review (i.e., adequately supervise) the 

other auditor’s work, leading to a moral 

hazard problem.305

Further, as discussed in the 2021 SRC, 

incentive problems may also arise from 

information asymmetry between lead 

auditors and other auditors.306 For 

example, as described in the 2016 

Proposal, under current standards lead 

auditors may not have sufficient access 

to information regarding the work 

performed by other auditors.307 Other 

auditors also may not be sufficiently 

incentivized to perform sufficient and 

appropriate audit procedures. A 

commenter on the 2021 SRC agreed that 

information asymmetry may exist 

between auditors. 

How the Amendments Will Address the 

Need 

The amendments are expected to 

increase the accountability of the lead 

auditor and require a more uniform, 

risk-based approach to the lead auditor’s 

oversight of other auditors. Specifically, 

the amendments rescind AS 1205 and 

amend AS 2101 and AS 1201 to apply 

in all situations in which the lead 

auditor involves other auditors. The 

amendments include additional riskbased requirements to provide the lead 

auditor with more specificity and clarity 

about the lead auditor’s supervisory 

responsibilities. 

Strengthening the performance 

requirements for lead auditors can 

augment the lead auditor’s incentive to 

monitor the performance of other 

auditors through adequate supervision 

of other auditors’ work. By addressing 

more clearly the responsibilities of the 

lead auditor (e.g., for planning the audit 

and supervising other auditors), the 

amendments position the lead auditor to 

align the incentives and auditing 

behaviors of other auditors with 

investors’ interests in reducing the risks 

of material misstatement in the financial 

statements. In particular, the 

amendments should incentivize lead 

auditors to anticipate potential 

problems that may arise in their 

relationships with other auditors and 

take action to address such matters. 

Investors should form expectations of 

audit quality under the more 

standardized and improved supervisory 

framework, and thus should have 

greater certainty about the lead auditor’s 

approach to supervision and the quality 

of the audit.308 Additionally, by adding 

specificity and reducing ambiguity 

regarding the lead auditor’s 

responsibilities, the amendments 

address risks arising from potential 

systematic, welfare-decreasing auditor 

and investor errors in judgment.309

Examples of amendments that are 

expected to strengthen and clarify the 

performance requirements for lead 

auditors and augment their incentive to 

monitor the performance of other 

auditors include the following: 

• In audits involving other auditors, 

the amendments to AS 2101 and AS 

1220 will enhance the requirements 

related to the engagement partner’s 

assessment of whether his or her firm 

performs sufficient work on the audit to 

warrant serving as lead auditor, and the 

engagement quality reviewer’s 

evaluation of that assessment. In 

addition, in audits that involve work 

performed by other auditors regarding 

locations or business units, the lead 

auditor’s involvement (through 

planning and performing audit 

procedures and supervising other 

auditors) will be required to be 

commensurate with the risks of material 

misstatement associated with those 

locations or business units. The 

amendments also describe the actions 

that the lead auditor should take with 

respect to each other auditor to 

determine compliance with 

independence and ethics requirements. 

Further, the amendments have specific 

requirements regarding the lead 

auditor’s responsibilities with respect to 

the other auditors’ knowledge, skill, and 

ability. 

• Currently, lead auditors can apply 

two different approaches: supervising 

the other auditors’ work under AS 1201 

or using the work and reports of other 

auditors under AS 1205. Under the 

amendments, AS 1205 will be 

rescinded, and lead auditors will be 

required to supervise other auditors 

under the amended AS 1201 when they 

assume responsibility for the other 

auditors’ work. 

The amendments to AS 1201 provide 

additional direction to the lead auditor 

on how to apply the principles-based 

provisions of the standard to the 

supervision of other auditors. For 

example, the amendments require the 

lead auditor to: (i) inform other auditors 

of the scope of their work and, with 

respect to such work requested, the 

identified risks of material 

misstatement, tolerable misstatement, 

and clearly trivial amounts (if 

determined); (ii) obtain and review the 

other auditor’s written description of 

procedures to be performed, and discuss 

with, and communicate in writing to, 

the other auditor any needed changes to 

the planned procedures; (iii) obtain and 

review a written affirmation from the 

other auditor as to whether the other 

auditor has performed work in 

accordance with the lead auditor’s 

instructions, and, if it has not, a 

description of the nature of, and an 

explanation of the reasons for, the 

instances where work was not 

performed in accordance with the 

instructions, including (if applicable) a 

description of the alternative work 

performed; (iv) direct other auditors to 

provide specified documentation 

regarding work performed; and (v) 

determine whether the other auditor 

performed the work as instructed and 

whether additional audit evidence 

needs to be obtained.310

Economic Impacts 

This section discusses the expected 

benefits and costs of the amendments 

and potential unintended consequences. 

Overall, the magnitude of the benefits 

and costs is likely to be affected by the 

extent to which other auditors are 

involved in audits, including the 

number of other auditors used and the 

amount of time spent by other auditors. 

Benefits and costs are also likely to be 

affected by the nature of the work and 

the risks involved in the work 

performed by other auditors, because 

more complex work and work in areas 

of greater risk will likely require greater 

supervisory efforts by the lead auditor. 

In addition, benefits and costs are likely 

to be affected by the degree to which 

accounting firms have already adopted 

audit practices that are similar to those 

the amendments will require. Overall, 

the Board expects that the benefits of 

the amendments will justify any costs 

and unintended negative effects. 

Benefits 

As discussed above, the amendments 

are expected to benefit investors and the 

public by mitigating information 

asymmetries between investors and the 

lead auditor and between the lead 

auditor and other auditors. The new 

requirements should strengthen the 


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311See 2016 Proposal at 37 note 78. 

312See paragraphs .09–.24 of AS 1301, 

Communications with Audit Committees. 313See 2016 Proposal at 38. 

314The 2016 Proposal also mentioned the 

potential additional costs incurred by traveling to 

a company’s locations or business units at which 

audit procedures are to be performed. See 2016 

Proposal at 38. As remote work and virtual 

meetings became more common in recent years, 

these costs may be less significant. 

supervision of other auditors, which in 

turn should improve audit quality and 

increase the likelihood that auditors 

detect material misstatements in the 

financial statements and material 

weaknesses in internal controls over 

financial reporting. Improving the 

quality of audits and financial reporting 

can reduce investors’ uncertainty about 

the information being provided in 

company financial statements, foster 

increased public confidence in the 

financial markets, and enhance capital 

formation. In particular, improving the 

quality of the information available to 

financial markets can increase the 

efficiency of capital allocation decisions 

and decrease the cost of capital.311

Specifically, the amendments address 

audit deficiencies of other auditors that 

continue to be observed in practice (see 

Figure 5 above) and provide more 

transparency to investors about how 

lead auditors supervise other auditors 

by increasing the accountability of the 

lead auditor and introducing a more 

uniform, risk-based approach to the lead 

auditor’s supervision of other auditors. 

The amendments require the lead 

auditor to determine the sufficiency of 

its participation in the audit based on 

quantitative and qualitative factors and 

be better informed about the 

qualifications and performance of the 

other auditor. The amendments also 

increase the requirements for the lead 

auditor to monitor and review (i.e., 

supervise) the work of other auditors. 

Investors also may benefit from the 

amendments indirectly. For example, 

under existing standards, the auditor is 

required to communicate to the audit 

committee its overall audit strategy, 

significant risks, and results of the 

audit, including work performed by 

other auditors, among other things.312

Because of the lead auditor’s enhanced 

involvement in the work of other 

auditors, the quality of communications 

with audit committees could also be 

enhanced, specifically as it relates to 

risks of material misstatements in the 

financial statements related to the 

component(s) of the company audited 

by the other auditor(s). Such enhanced 

discussions with the audit committee 

could improve the audit committee’s 

oversight of the audit by highlighting 

areas where audit committees and 

companies should increase attention to 

ensure the quality of their financial 

statements, including related 

disclosures. This increased attention by 

audit committees and companies could 

result in higher quality financial 

reporting, which benefits investors. 

The Board expects that the 

amendments will lead to improved 

supervision of other auditors’ work and 

an increase in audit quality. Auditors 

also may benefit from the amendments 

due to the reduced risk of failure to 

detect material misstatements. As a 

result, associated costs such as the risk 

of litigation, regulatory sanction, or 

reputational loss faced by auditors 

could decrease. 

Some commenters provided 

information responding to the 

discussion of potential benefits to 

investors and other financial statement 

users. One commenter said that many of 

the changes contemplated in the 2016 

Proposal would improve the quality of 

audits involving other auditors and 

benefit investors. Another commenter 

stated that the proposed changes should 

decrease the overall likelihood of 

misstatement by enhancing the 

verification process of information 

relied upon by other auditors, and 

therefore should serve as added 

safeguards for investors and the general 

public through their ability to rely on 

the financial statement data and related 

disclosures. Another commenter said 

that the proposed amendments would 

provide more transparency about audits 

involving other auditors and would 

therefore benefit investors and the 

public. Similarly, in response to the 

2021 SRC, commenters agreed that the 

amendments would enhance audit 

quality and protect the interests of 

investors. These comments are 

consistent with the benefits identified in 

this section. 

Costs 

The Board recognizes that imposing 

new requirements may result in 

additional costs to auditors and the 

companies they audit. 

Auditors may incur certain fixed costs 

(costs that are generally independent of 

the number of audits performed) related 

to implementing the amendments. 

These include costs to update audit 

methodologies and tools, and to prepare 

training materials and conduct training. 

Large firms are likely to update 

methodologies using internal resources, 

whereas small firms are more likely to 

purchase updated methodologies from 

external vendors.313 The costs to update 

methodologies likely depend on the 

extent to which the new requirements 

have already been incorporated in the 

firms’ current methodologies. For firms 

that have implemented supervisory 

procedures like those required by the 

amendments, the costs of updating 

methodologies may be lower than for 

firms that currently do not have such 

procedures. Larger accounting firms, 

which often perform audits involving 

other auditors, will likely take 

advantage of economies of scale by 

distributing fixed costs over a larger 

number of audit engagements. Smaller 

accounting firms, which less often 

perform audits that involve other 

auditors, will likely distribute their 

fixed costs over fewer audit 

engagements. 

In addition, auditors may incur 

certain engagement-level variable costs 

related to implementing the 

amendments. For example, to 

implement the additional requirements, 

both lead auditors and other auditors 

may: 

• Increase the number of engagement 

team members and engagement quality 

reviewer assistants; or 

• Increase the amount of time 

incurred by the existing team members 

and engagement quality reviewers and 

their assistants.314

The magnitude of the variable costs 

likely depends on several factors. For 

firms that have required greater lead 

auditor involvement and already have 

applied some of the new requirements 

in practice, the variable costs may be 

lower than for firms that currently 

require less lead auditor involvement. 

The variable costs are also likely to be 

affected by the nature of the 

engagement, including the extent of 

involvement of other auditors (e.g., the 

number of other auditors used and the 

amount of time spent by other auditors), 

and the level of risk associated with the 

audit work performed by other auditors. 

Finally, the total variable costs are 

related to the number of audits using 

other auditors. 

Since the total fixed and variable 

costs of the amendments likely depend 

on the interaction of all the factors 

discussed above, it is not clear whether 

these costs, as a percentage of total audit 

costs, will be greater for larger or for 

smaller accounting firms. 

For audits in which the lead auditor 

divides responsibility for the audit with 

another accounting firm, the anticipated 

impact of the amendments on the lead 

auditor’s costs is not likely to be 

significant. Currently, about 40 audits 

per year involve divided responsibility, 

and the amendments to PCAOB 


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315See 2016 Proposal at 40 note 80. 

316See 2017 SRC at 14; 2021 SRC at 24. 

317 In addition to the potential unintended 

consequences discussed in this section, potential 

results of certain other aspects of the proposed 

amendments were described by some commenters 

as ‘‘unintended.’’ These and other comments are 

discussed in elsewhere in this release in 

conjunction with the following aspects of the final 

amendments: the sufficiency-of-participation 

determination for serving as the lead auditor; other 

auditors’ compliance with independence and ethics 

requirements; other auditors’ knowledge, skill, and 

ability; informing other auditors of their 

responsibilities; directing other auditors to perform 

certain supervisory procedures in a multi-tiered 

audit; and dividing responsibility for the audit. 

318The PCAOB’s underlying standards governing 

the work of other auditors and referred-to auditors 

will similarly continue to apply to their work. 

standards that apply to those scenarios 

are not as significant as other 

amendments. 

In addition to auditors, companies 

being audited may also incur costs 

related to the amendments, both directly 

and indirectly. Companies could incur 

direct costs from engaging with or 

otherwise supporting the auditor 

performing the audit. For example, 

some companies could face costs of 

producing documents and responding to 

additional auditor requests for audit 

evidence, due to more rigorous 

evaluation of audit evidence by lead and 

other auditors. To the extent that 

auditors incur higher costs to 

implement the amendments and are 

able to pass on at least part of the 

increased costs through an increase in 

audit fees, companies could incur an 

indirect cost.315

In response to the 2016 Proposal, one 

commenter agreed that the incremental 

cost due to the 2016 Proposal is likely 

to be limited because some accounting 

firms already had implemented many 

aspects of the 2016 Proposal in their 

methodology and/or in practice, and 

because of the risk-based approach 

taken in the 2016 Proposal. Another 

commenter stated that audit firms not 

already complying with the 

requirements would experience higher 

costs, but most firms already performed 

audits under GAAS standards, and for 

them the increased costs would not be 

prohibitive. In response to the 2021 

SRC, two commenters described 

potential increased costs when the lead 

auditor and other auditor are part of the 

same network. The commenters 

suggested that the potential increased 

costs would be caused by the inability 

to sufficiently leverage common systems 

of quality control, resulting in 

unnecessary effort to understand the 

other auditor’s audit procedures. As 

discussed in the 2017 and 2021 SRCs, 

however, affiliation through a network 

does not automatically provide the lead 

auditor with an understanding of the 

other affiliates’ processes and 

experience.316 One commenter 

recommended the PCAOB consider the 

difficulties encountered and resources 

used by firms in complying with 

PCAOB standards, AICPA AU-Cs, and 

IAASB ISAs. The Board’s considerations 

are discussed below. 

Potential Unintended Consequences 

In addition to the benefits and costs 

discussed above, the amendments could 

have unintended economic impacts. 

The 2016 Proposal described a number 

of potential unintended consequences, 

resulting in public comments on those 

topics and others. This section discusses 

the potential unintended consequences 

as well as the Board’s consideration of 

such consequences in adopting the 

amendments.317 The discussion also 

addresses, where applicable, factors that 

mitigate the potential consequences, 

including revisions to the proposed 

amendments reflected in the 

amendments the Board is adopting and 

the existence of other countervailing 

factors. 

Accountability of Other Auditors 

Unlike AS 1205, AS 1201 does not 

contain a statement that ‘‘the other 

auditor remains responsible for the 

performance of his own work and for 

his own report.’’ Thus, it is possible that 

the other auditor could feel less 

accountable given that the amendments 

focus the responsibility for providing 

direction and supervision of the other 

auditor on the lead auditor. If this 

occurred, audit quality could decrease. 

Commenters expressed differing 

views on the 2016 Proposal’s potential 

impact on other auditors’ 

accountability. Several commenters 

stated that the proposed amendments 

would not diminish other auditors’ 

overall accountability. Other 

commenters stated that if the 

amendments are applied correctly, the 

lead auditor’s supervision should hold 

the other auditors to a higher level of 

overall accountability and improve the 

overall quality of other auditors’ work. 

Other commenters expressed concern 

that the 2016 Proposal did not include 

the statement in AS 1205.03 about other 

auditors’ responsibility. Omitting this 

provision, in their view, may be 

interpreted as a reduction in the 

responsibility and accountability of 

other auditors, which could have 

adverse effects on audit quality. Some 

commenters recommended retaining the 

existing provision or including an 

analogous requirement to address the 

other auditors’ responsibility. 

To mitigate this potential negative 

consequence, AS 1015 is being amended 

to emphasize that the other auditors are 

responsible for performing their work 

with due professional care.318 This 

amendment was proposed in the 2017 

SRC and supported by commenters. 

Notably, under the amended standards, 

the other auditor remains responsible 

for performing its assigned work with 

due professional care and otherwise in 

conformance with PCAOB standards. 

This responsibility is reflected in the 

auditor documentation the other auditor 

must prepare regarding the work 

performed, including written 

affirmation to the lead auditor regarding 

whether the other auditor performed its 

work in accordance with the lead 

auditor’s instructions, including 

applicable PCAOB standards. In 

addition, the other auditor’s work is 

subject to greater oversight by the lead 

auditor under the amended standards, 

which will reduce the other auditor’s 

opportunities for performing 

insufficient work without detection. 

Finally, the other auditor’s work 

continues to be subject to PCAOB 

oversight activities due to its 

participation in the audit. 

Time of Lead Auditor 

Because lead auditor personnel will 

be required to perform additional 

supervisory responsibilities, such team 

members might have less time to 

perform other work on the same 

engagement. This could potentially 

reduce the likelihood that the auditor 

detects material misstatements in the 

portion of the financial statements for 

which the lead auditor performs 

procedures and could potentially lead to 

inefficient allocation of audit resources. 

Several commenters on the 2016 

Proposal agreed that this potential 

unintended consequence could arise, 

adding that the increased planning and 

supervisory effort required of the lead 

auditor could also leave less time for the 

lead auditor to consider important 

issues. 

The Board’s inclusion of risk-based 

supervision requirements in the 

amended standards is intended to 

mitigate the possibility that the lead 

auditor will neglect work it intends to 

perform because of the attention it 

devotes to other auditors. In particular, 

the additional supervisory procedures 

required for the lead auditor’s 

supervision of work performed by other 

auditors are intended to provide the 

lead auditor with a basis for concluding 

whether the financial statements are free 

of material misstatement. Thus, under 

the amended standards, the lead auditor 


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319AS 1015.06. 

320Paragraph .05a of AS 2301, The Auditor’s 

Responses to the Risks of Material Misstatement. 

321Paragraph .15a of QC 20, System of Quality 

Control for a CPA Firm’s Accounting and Auditing 

Practice. 

322See 2016 Proposal at 42 and note 84; see also 

Juan Mao, Michael Ettredge, and Mary Stone, Group 

Audits: Are Audit Quality and Price Associated 

with the Lead Auditor’s Decision to Accept 

Responsibility?, 39(2) Journal of Accounting and 

Public Policy 1 (2020) (examining whether a lead 

auditor’s disclosure of its choice to accept or 

decline (i.e., divide) responsibility for the work of 

another firm is associated with differences in audit 

fees or audit quality, and finding that ‘‘[l]ead 

auditors accepting responsibility charge higher 

audit fees but provide audits of no higher quality, 

and possibly of even lower quality’’). 

323See paragraphs AS 1206.06d and .08. Rule 2– 

05 of Regulation S–X, 17 CFR 210.2–05, includes 

requirements regarding filing the referred-to 

auditor’s report with the SEC. 

324See discussion above. 

325See 2016 Proposal at 43. 

326See Figures 2 and 3 above. 

327See 2017 SRC at 40. 

should be focusing its efforts on audit 

areas with the greatest risk of material 

misstatement to the financial 

statements, whether those areas are 

audited by the lead auditor directly or 

by an other auditor under the lead 

auditor’s supervision. Further, as lead 

auditor personnel gain experience and 

become more efficient in applying the 

new requirements related to other 

auditors, the likelihood that the lead 

auditor misallocates its time and 

resources should decrease. 

Involvement by Other Auditors 

In response to (i) the potential costs 

or any practical difficulties of 

supervising other auditors under the 

amended standards or (ii) the 

sufficiency-of-participation 

requirements, the lead auditor, in some 

circumstances, may decrease the share 

of work performed by other auditors and 

increase the share of its own work. 

While this may be an efficient and 

effective response in certain 

circumstances, limiting other auditors’ 

involvement in the engagement may 

negatively affect audit quality to the 

extent the other auditors possess 

knowledge of important countryspecific information. Two commenters 

on the 2016 Proposal agreed that this 

unintended consequence may arise. 

This potential outcome, however, 

would be contrary to the following 

requirements in PCAOB standards: 

• ‘‘Engagement team members should 

be assigned to tasks and supervised 

commensurate with their level of 

knowledge, skill, and ability so that they 

can evaluate the audit evidence they are 

examining.’’ 319

• ‘‘The knowledge, skill, and ability 

of engagement team members with 

significant engagement responsibilities 

should be commensurate with the 

assessed risks of material 

misstatement.’’ 320

• Firms are required to have policies 

and procedures in place that provide 

reasonable assurance that the firm will 

undertake ‘‘only those engagements that 

the firm can reasonably expect to be 

completed with professional 

competence.’’ 321

In addition, legal restrictions in some 

countries that prohibit a foreign auditor 

from providing professional services in 

the country could limit a foreign lead 

auditor’s ability to take on more work 

and assign less work to other auditors in 

the country. The Board anticipates that 

lead auditors will find the appropriate 

balance between the lead auditor and 

other auditor involvement in the audit 

as accounting firms gain experience in 

implementing the new requirements 

and seek to maximize the effectiveness 

and efficiency of audit engagements. 

Occurrence of Divided Responsibility 

Some auditors who currently use an 

other auditor’s work under AS 1205 

may view compliance with the 

supervision requirements of AS 1201 (as 

amended) as too costly and decide 

instead to divide responsibility for the 

audit. Several commenters on the 2016 

Proposal agreed that this unintended 

consequence may arise, although some 

of them added that the likelihood was 

low. There are limited research findings 

available regarding the division of 

responsibility,322 and it is not clear how 

an increase in audits with divided 

responsibility would affect audit 

quality. To provide transparency about 

such situations, the amendments require 

that, in a divided-responsibility 

scenario, the lead auditor disclose in its 

audit report: (i) the part of the audit that 

is performed by another accounting 

firm; (ii) the magnitude of the portion of 

the company’s financial statements 

audited by the referred-to auditor; (iii) 

the referred-to auditor’s name; and (iv) 

which auditor (lead or referred-to) has 

audited the conversion adjustments 

when the financial statements of the 

company and its business unit are 

prepared using different financial 

reporting frameworks.323

Impact on Smaller Firms 

The amendments will likely have an 

economic impact on audits performed 

by smaller firms that use other auditors. 

This is because smaller firms (i) are less 

likely to perform today the procedures 

described in the amendments and (ii) 

generally lack the economies of scale to 

distribute the additional fixed costs over 

many audits.324 The 2016 Proposal also 

noted that additional supervisory 

requirements could decrease 

competition in the audit market for 

audits involving other auditors if 

smaller firms are less able to compete 

with larger firms.325

Several commenters on the 2016 

Proposal agreed that this unintended 

consequence may arise. One commenter 

stated that, for smaller firms, complying 

with the proposed supervisory 

responsibilities may increase costs to 

such an extent that some smaller firms 

may exit the market for audits involving 

other auditors. Another commenter said 

that it would be harder for smaller firms 

than for larger firms to meet the 

proposed threshold for serving as lead 

auditor. 

However, as discussed above, staff 

analysis using Form AP data shows that 

smaller firms already perform relatively 

fewer audits that involve other 

accounting firms than larger firms, and 

when they do, they use fewer other 

accounting firms.326 Thus, any impact 

on competition in the overall audit 

market is likely to be relatively small. 

The Board’s risk-based and scalable 

approach to designing the amendments 

is also intended to maintain a level 

playing field for all auditors choosing to 

involve other auditors in their audit, 

regardless of their size. Scalability is a 

characteristic of policy that typically 

refers to circumstances where 

requirements are general enough (e.g., 

principles-based) to be adapted 

effectively and efficiently under 

different facts and circumstances. Riskbased requirements are usually scalable 

because the necessary level of audit 

effort varies depending on the level of 

complexity and risk. Thus, risk-based 

requirements are likely to be relatively 

efficient (or at least not inefficient), 

because the auditor’s incentives and 

discretion are likely to result in costs 

being incurred primarily in 

circumstances involving a 

corresponding, and potentially larger, 

risk-mitigation benefit to investors.327

Under the amendments, the lead auditor 

would be required to determine the 

extent of supervision of other auditors 

based on, among other things, the nature 

of work, and risk of material 

misstatement. 

Benefit From Additional Requirements 

It is possible that some audits (e.g., 

those previously conducted under AS 

1205) will not benefit from the new 

requirements. This could occur, for 

example, on very simple low-risk audits 

that involve highly qualified other 

auditors. In such circumstances, the 


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328These commenters also suggested improving 

the practicability of proposed requirements by 

allowing the lead auditor to seek assistance from 

other auditors in supervising the audit to a greater 

extent than the Board proposed. In response to 

these and other comments, the Board made a 

number of changes in the 2021 SRC to address the 

practicability concern, including in connection 

with multi-tiered audits. 

lead auditor could incur incremental 

costs to comply with the additional 

planning and supervisory requirements 

in the amended standards without 

yielding a corresponding benefit to 

audit quality. 

This inefficient outcome is mitigated 

by the risk-based and scalable aspects of 

the amended standards, which rely on 

the lead auditor to make judgments 

about the nature and extent of 

supervision of other auditors based on 

risks. The Board anticipates that as lead 

auditors gain experience implementing 

the new requirements, they will make 

appropriate judgments that are efficient 

and effective at achieving the desired 

level of audit quality. The Board 

received no comments on this potential 

unintended consequence described in 

the 2016 Proposal. 

Alternatives Considered 

The development of this rulemaking 

involved the consideration of a number 

of alternative approaches to address the 

problems described above. This section 

explains (i) why standard setting is 

preferable to other policy-making 

approaches, such as providing 

interpretive guidance or enhancing 

inspection or enforcement efforts; (ii) 

other standard-setting approaches that 

were considered; and (iii) key policy 

choices made by the Board in 

determining the details of the standardsetting approach in this rulemaking. 

Why Standard Setting Is Preferable to 

Other Policy-Making Approaches 

The Board’s policy tools include 

alternatives to standard setting, such as 

issuing additional interpretive guidance 

or an increased focus on inspections or 

enforcement of existing standards. The 

Board considered whether providing 

guidance or increasing inspection or 

enforcement efforts would be effective 

corrective mechanisms to address 

concerns with the supervision of other 

auditors and the sources of information 

asymmetry discussed above. The Board 

concluded that interpretive guidance, 

inspections, or enforcement actions 

alone would be less effective in 

achieving the Board’s objectives than in 

combination with amending the 

auditing standards. Interpretive 

guidance inherently provides additional 

information about existing standards. 

Inspections and enforcement actions 

take place after insufficient audit 

performance (and potential investor 

harm) has occurred. Devoting additional 

resources to guidance, inspections, and 

enforcement activities without 

improving the relevant performance 

requirements for auditors would, at best, 

focus auditors’ performance on existing 

standards and would not gain the 

benefits associated with improving the 

standards. Two commenters expressed 

support for an approach that includes 

standard setting.328 The Board’s 

approach reflects its conclusion that 

standard setting is needed to fully 

achieve the benefits resulting from 

improvement in audits involving 

multiple auditors. 

Other Standard-Setting Alternatives 

Considered 

The Board also considered certain 

standard-setting approaches, including: 

(i) retaining the existing framework but 

requiring the lead auditor to disclose 

which standard (AS 1201 or AS 1205) 

governs the relationship between the 

lead auditor and other auditors; (ii) 

amending AS 1205 or extending the 

approach in that standard to cover all 

arrangements involving other auditors 

and referred-to auditors; (iii) developing 

a new standard, in addition to the 

Board’s risk assessment standards, that 

would address all arrangements with 

other auditors and referred-to auditors; 

or (iv) amending existing standards to 

address the oversight of multi-location 

audit engagements generally (including 

multi-location engagements performed 

by a single firm), in addition to 

amending the standards to address the 

auditor’s use of other auditors and 

referred-to auditors. 

Disclosing Which Standard Applies 

Under Existing Framework 

The Board considered but is not 

adopting a requirement that the lead 

auditor disclose, in the audit report or 

elsewhere, whether the lead auditor 

applied AS 1205 or AS 1201 in its 

oversight of the other auditor. Such a 

disclosure approach would not achieve 

the benefits of applying AS 1201 (as 

amended) to all audits that involve 

other auditors, and inconsistencies 

between firms in their approaches to the 

oversight of other auditors would 

remain. 

From an economic perspective, it is 

more efficient and effective to address 

the reasons for change described above 

by amending existing auditing standards 

on supervision than by disclosing which 

standard applies. The amendments 

directly address the lead auditor’s 

incentives, whereas disclosing which 

one of the standards (before the 

amendments) applies would do so 

indirectly at best. For disclosure to 

sufficiently change the lead auditor’s 

incentives, investors would need to 

apply significant market pressure on 

auditors to improve their supervisory 

procedures beyond requirements in 

PCAOB standards (before the 

amendments). This approach seems 

unlikely given the wide dispersion of 

share ownership among investors and 

the costs of engaging in collective 

action. 

Amending AS 1205 

The Board considered, but is not 

adopting, two alternative approaches 

that would amend rather than rescind 

AS 1205. The first approach would have 

amended AS 1205 to strengthen its 

oversight requirements but otherwise 

retained the existing two-standard 

framework in which an engagement 

involving other auditors could be 

governed by either AS 1205 or AS 1201, 

depending on the circumstances of the 

engagement. The second approach 

would have amended AS 1205 to extend 

its application to all arrangements 

involving other auditors and referred-to 

auditors such that AS 1201 would no 

longer apply. 

The Board determined that the riskbased supervision approach in AS 1201 

promotes a more appropriate 

involvement by the lead auditor than 

the approach in AS 1205. The 

supervisory approach in AS 1201 

requires that the level of supervision be 

commensurate with the associated risks, 

and that would apply to the supervision 

of the other auditors’ work. From an 

economic perspective, the risk-based 

approach, which is now a wellestablished and understood auditing 

practice, requires the lead auditor to 

take into account the facts and 

circumstances of an audit engagement to 

inform a variety of resource allocation 

decisions, including the nature, timing, 

and extent of its supervision of other 

auditors. This approach enables the lead 

auditor to better align its supervisory 

effort with the level of risk, focusing 

more attention on the riskiest areas of 

the audit and thus provide more risk 

mitigation benefit to investors. 

Similarly, the other auditors’ 

communication of important and 

relevant information to the lead auditor 

allows the lead auditor to make betterinformed decisions regarding the work 

of the other auditor. 

In contrast, AS 1205 employs an 

approach that allows the lead auditor to 

use the work of other auditors based on 

the performance of certain limited 

procedures that are not explicitly 

required to be tailored for the associated 


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329Requirements for multi-location engagements 

are specifically addressed in risk assessment 

standards adopted by the Board in 2010 and in 

certain other standards. See, e.g., AS 2101; AS 2105, 

Consideration of Materiality in Planning and 

Performing an Audit; AS 2110, Identifying and 

Assessing Risks of Material Misstatement; AS 2301. 

See also AS 2401, Consideration of Fraud in a 

Financial Statement Audit; Paragraphs A60–A67 of 

AS 1215, Appendix A: Background and Basis for 

Conclusions; AS 6115, Reporting on Whether a 

Previously Reported Material Weakness Continues 

to Exist. 

330See paragraphs .06A–.06C of AS 2101. 

331See SAG Meeting Archive (May 18, 2016; Dec. 

1, 2016; May 24, 2017; Nov. 30, 2017), available at 

https://pcaobus.org/about/advisory-groups/archiveadvisory/standing-advisory-group/sagmeeting

archive. Transcripts of the relevant portions of SAG 

meetings related to this project are available in the 

docket for this rulemaking on the PCAOB’s website 

(https://pcaobus.org/Rulemaking/Pages/ 

Docket042.aspx). 

risks. Thus, the approach of AS 1205 

would not address the problems 

described in this release as effectively as 

the supervisory approach of AS 1201. 

Developing a New Standard for All 

Arrangements with Other Auditors and 

Referred-to Auditors 

The Board also considered developing 

a new, separate standard to govern all 

arrangements with other auditors and 

referred-to auditors. In that regard, some 

commenters suggested the PCAOB align 

a new standard with the relevant 

standards of other standard setters such 

as the IAASB. Although the IAASB has 

a separate standard for group audits, 

ISA 600, the Board believes that 

adopting a separate standard in its 

auditing standards is not necessary for 

most audits in which the lead auditor 

uses the work of other auditors. (The 

Board is, however, adopting a separate 

standard, AS 1206, to govern dividedresponsibility audits, which are 

relatively uncommon.) Specifically, the 

existing standard on supervision, AS 

1201, which is integrated with the 

Board’s other risk assessment standards, 

already includes principles-based 

requirements that apply to audits 

involving other auditors in situations 

not covered by AS 1205. 

Extending the requirements of AS 

1201 to all situations involving other 

auditors and adding to AS 1201 more 

specific requirements for supervising 

the other auditor’s work is a more 

efficient way to incorporate these 

requirements into the existing 

framework of PCAOB auditing 

standards. In addition, as discussed 

above, some commenters supported the 

Board’s objective of establishing 

requirements for using other auditors’ 

work that are risk-based and more 

closely aligned with the Board’s risk 

assessment standards than existing 

standards. Accordingly, this rulemaking 

takes an integrated approach that 

involves enhancing the existing 

standard through targeted amendments 

that impose certain requirements on the 

lead auditor, rather than creating an 

entirely new standard. 

Amending To Address Oversight of 

Multi-Location Engagements 

The Board considered, but is not 

adopting, amendments to existing 

standards that would apply to oversight 

of multi-location audit engagements 

generally (including multi-location 

engagements performed by a single 

firm), in addition to amendments that 

apply to the auditor’s use of other 

auditors and referred-to auditors. The 

Board is not adopting such amendments 

because existing PCAOB auditing 

standards already specifically address 

multi-location engagements.329

Additional requirements for these 

audits, along with requirements for 

supervising other auditors, could create 

unnecessary complexity and 

redundancy with existing requirements. 

Finally, the Board through its oversight 

has seen less cause for concern 

regarding single-firm multi-location 

engagements compared to audits 

involving other auditors. 

Key Policy Choices 

Given a preference for amending AS 

1201, the Board considered different 

approaches to addressing key policy 

issues. 

Sufficiency of the Lead Auditor’s 

Participation 

To increase the likelihood that a lead 

auditor is meaningfully involved in the 

audit, the amendments require that the 

lead auditor determine the sufficiency 

of its participation in each audit that 

involves other auditors or referred-to 

auditors.330 Sufficient participation by 

the lead auditor is required so that the 

work of all audit participants is properly 

planned and supervised, the results of 

the work are properly evaluated, and the 

lead auditor is in a position to conclude 

that the financial statements are 

presented fairly in all material respects. 

In evaluating the alternative approaches, 

the Board weighed the practical 

implications of specific criteria or 

conditions on the efficiency and 

effectiveness of the audit. The Board 

also evaluated, among other things, 

relevant information from its oversight 

activities and views from Standing 

Advisory Group (SAG) members.331

The requirement for determining 

sufficiency of participation which the 

Board is adopting is based on the 

following criteria: (i) the importance of 

the locations or business units for which 

the engagement partner’s firm performs 

audit procedures in relation to the 

financial statements as a whole, 

considering quantitative and qualitative 

factors; (ii) the risks of material 

misstatement associated with the 

portion of the financial statements 

audited by the engagement partner’s 

firm in comparison with the other 

auditors’ or referred-to auditors’ 

portions; and (iii) the extent of the 

engagement partner’s firm’s supervision 

of the other auditors’ work. The second 

consideration is aligned with the 

principle of determining the scope of 

work in a multi-location audit, as both 

take into account the risk associated 

with the respective locations or business 

units. The first and third considerations 

cover specific situations that may arise 

in audits involving other auditors or 

referred-to auditors, where applicable; 

these considerations address concerns 

about the practicability of the proposed 

requirements that were expressed by 

some commenters on the 2016 Proposal, 

the 2017 SRC, and the 2021 SRC. 

The Board considered prescribing 

additional considerations for 

determining sufficiency of participation 

based on the location of the company’s 

principal assets, principal operations, 

and corporate offices. Such additional 

considerations were not adopted 

because the considerations in the final 

amendments already encompass them to 

the extent they reflect the importance of 

the location or pose risks of material 

misstatement to be addressed in the 

audit. Moreover, as further discussed in 

this release, the Board is concerned that 

adding more considerations could 

increase the risk that the firm issuing 

the auditor’s report would not 

meaningfully participate in the audit, 

and thus would be the ‘‘lead auditor’’ in 

name only. 

Lead Auditor’s Supervisory 

Requirements 

When other auditors are involved in 

an audit, the Board considered whether 

the lead auditor (which includes the 

engagement partner and other 

supervisory personnel of the firm 

issuing the audit report) should be 

specifically required to perform certain 

supervisory procedures, and what the 

scope of any such procedures should be. 

PCAOB standards allow the engagement 

partner to seek assistance from 

appropriate engagement team members 

in fulfilling his or her supervisory 

responsibilities, but the standards for 

supervision (without the amendments) 

do not specify which supervisory 

procedures must be performed by the 

lead auditor. 


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Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39729 

332See AS 1015.06 and AS 2101.06Ha, according 

to which ‘‘[e]ngagement team members should be 

assigned to tasks and supervised commensurate 

with their level of knowledge, skill, and ability 

. . . .’’ This provision is discussed in more detail 

above in this release. 

333This provision is discussed in more detail 

above in relation to ‘‘multi-tiered audits’’ in this 

release. 

334See Public Law 112–106 (Apr. 5, 2012). See 

Section 103(a)(3)(C) of Sarbanes-Oxley, 15 U.S.C. 

7213(a)(3)(C), as added by Section 104 of the JOBS 

Act also provides that any rules of the Board 

requiring (1) mandatory audit firm rotation or (2) a 

supplement to the auditor’s report in which the 

auditor would be required to provide additional 

information about the audit and the financial 

statements of the issuer (auditor discussion and 

analysis) shall not apply to an audit of an EGC. The 

amendments do not fall within either of these two 

categories. 

335See 2016 Proposal at 51; 2017 SRC at 43; 2021 

SRC at 66. 

336For the most recent EGC report, see 

Characteristics of Emerging Growth Companies and 

Their Audit Firms at November 15, 2020 (Jan. 24, 

2022), available at https://pcaobassets.azureedge.net/pcaob-dev/docs/defaultsource/economicandriskanalysis/projectsother/ 

documents/white-paper-on-characteristics-ofemerging-growth-companies-at-november-15- 

2020.pdf?sfvrsn=ee0e6910_3. 

337See id. at 1. Approximately 97 percent of EGCs 

were audited by accounting firms that also audit 

issuers that are not EGCs, and 40 percent of EGC 

filers were audited by firms that were subject to 

inspection on an annual basis by the PCAOB 

because they issued audit reports for more than 100 

issuers in the year preceding the measurement date. 

See id. at 16, 20. As of the November 15, 2021 

measurement date, PCAOB staff identified 

approximately 3,100 companies that self-identified 

with the SEC as EGCs and filed audited financial 

statements in the 18 months preceding the 

measurement date. The increase from 2020 to 2021 

is, in large part, driven by special purpose 

acquisition companies. Special purpose acquisition 

company audits rarely involve the participation of 

other auditors. 

338The analysis of Form AP data presented in 

Figure 6 is limited to issuers other than investment 

company vehicles and employee benefit plans. 

In many audits, engagement partners 

seek assistance in fulfilling their 

supervisory responsibilities from 

engagement team members at other 

accounting firms that participate in the 

audit. By increasing the lead auditor’s 

monitoring responsibilities, the 

supervisory procedures for the lead 

auditor that are described in the 

amendments should enhance the ability 

of the lead auditor to prevent or detect 

deficiencies in the work of other 

auditors and facilitate improvements in 

the quality of the work of other auditors. 

Thus, these amendments aim to change 

auditor behavior by strengthening the 

incentives of the lead auditor and 

therefore addressing the information 

and incentive problems discussed 

above. 

The Board considered, but is not 

adopting, a requirement that the lead 

auditor obtain an understanding of the 

qualifications of all engagement team 

members outside the lead auditor’s firm. 

Instead, the amended standards require 

that the lead auditor obtain an 

understanding of the knowledge, skill, 

and ability of the other auditor’s 

engagement team members who assist 

the engagement partner with planning 

or supervision.332 Further, in response 

to comments on the proposed 

requirements, the amendments provide 

that in audits involving multiple tiers of 

other auditors, the lead auditor may 

seek assistance from the first other 

auditor in performing this procedure 

with respect to the second other 

auditor.333 The requirement the Board is 

adopting is designed to result in a more 

effective allocation of audit resources by 

focusing the lead auditor’s efforts on the 

engagement team members outside the 

firm with whom the lead auditor 

primarily communicates and who are 

responsible for planning or supervising 

the work performed by other 

engagement team members. 

The Board also considered, but is not 

adopting, a requirement that the lead 

auditor determine the nature, timing, 

and extent of audit procedures to be 

performed by the other auditors. 

Instead, the amended standards require 

that the lead auditor determine the 

scope of the work of other auditors and 

review the other auditors’ written 

description of audit procedures to be 

performed pursuant to the scope of 

work requested. The amended standards 

also require that the lead auditor 

determine whether there are any 

changes necessary to the procedures and 

discuss the changes with, and 

communicate them in writing to, other 

auditors. This approach is more 

effective because the lead auditor 

generally has better visibility of the 

entire audit, and the other auditors 

generally have more detailed 

information than the lead auditor about 

audit areas in which they are involved. 

Special Considerations for Audits of 

Emerging Growth Companies 

Pursuant to Section 104 of the 

Jumpstart Our Business Startups 

(‘‘JOBS’’) Act, rules adopted by the 

Board subsequent to April 5, 2012, 

generally do not apply to the audits of 

emerging growth companies (i.e., EGCs), 

as defined in Section 3(a)(80) of the 

Securities Exchange Act of 1934, unless 

the SEC ‘‘determines that the 

application of such additional 

requirements is necessary or appropriate 

in the public interest, after considering 

the protection of investors, and whether 

the action will promote efficiency, 

competition, and capital formation.’’ 334

As a result of the JOBS Act, the rules 

and related amendments to PCAOB 

standards that the Board adopts are 

generally subject to a separate 

determination by the SEC regarding 

their applicability to audits of EGCs. 

The proposing releases sought 

comment, including any available 

empirical data, on how the proposed 

amendments to the auditing standards 

would affect EGCs, and whether they 

would protect investors and promote 

efficiency, competition, and capital 

formation.335 Commenters generally 

supported applying the proposed 

requirements to audits of EGCs. One 

noted the increased risks associated 

with EGCs and that applying the 

amendments to EGC audits could help 

to address those risks. Others 

emphasized that consistent 

requirements should apply for similar 

situations encountered in any audit of a 

company, whether that company is an 

EGC or not. One commenter on the 2021 

SRC agreed with the Board’s statements 

that the benefits to audit quality through 

improved planning and supervision 

may be especially significant for EGC 

audits, and that the amendments could 

contribute to an increase in the 

credibility of EGCs’ financial reporting. 

To inform consideration of the 

application of auditing standards to 

audits of EGCs, PCAOB staff prepares a 

white paper annually that provides 

general information about 

characteristics of EGCs.336 As of the 

November 15, 2020 measurement date, 

PCAOB staff identified 1,940 companies 

that self-identified with the SEC as 

EGCs and filed audited financial 

statements in the 18 months preceding 

the measurement date.337

Analysis of Form AP filings in 2021 

indicates that audits of EGCs are less 

likely to involve other accounting firms 

(i.e., other auditors and referred-to 

auditors) compared to the broader 

population of issuer audits. For 

example, as shown in Figure 6, only 14 

percent of audits of EGCs involved other 

firms compared to 27 percent of issuer 

audits overall.338 Thus, because the use 

of other firms is less prevalent in audits 

of EGCs than in audits of non-EGCs, 

audits of EGCs generally are less likely 

than those of non-EGCs to be affected by 

the amendments. 


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339Researchers have developed a number of 

proxies that are thought to be correlated with 

information asymmetry, including small issuer size, 

lower analyst coverage, larger insider holdings, and 

higher research and development costs. To the 

extent that EGCs exhibit one or more of these 

properties, there may be a greater degree of 

information asymmetry for EGCs than for the 

broader population of companies, which increases 

the importance to investors of the external audit to 

enhance the credibility of management disclosures. 

See 2021 SRC at 65 notes 181 and 182. 340See 2021 SRC at 65 note 183. 

Audits of EGCs that do involve other 

accounting firms are also likely to 

involve fewer other firms than those of 

issuers overall. For example, as shown 

in Figure 6, in audits involving other 

accounting firms, EGC audits involve 

two or more other firms in about 35 

percent of audits compared to about 61 

percent of audits of issuers overall. The 

difference is more pronounced when 

considering the use of several other 

firms, where only about five percent of 

EGC audits involving other firms 

involve five or more other firms in 

contrast to about 28 percent of issuer 

audits overall. 

A comparison of the share of total 

audit hours performed by other 

accounting firms shows a more modest 

difference between EGC audits and 

issuer audits overall. Measured by the 

share of total audit hours performed by 

other accounting firms, the role of other 

firms on EGC audits is less substantial 

compared to their role on audits of 

issuers overall. For example, as shown 

in Figure 6, other accounting firms 

perform 10 percent or more of the audit 

hours in about 40 percent of audits of 

EGCs compared to about 52 percent of 

audits of issuers overall. Other 

accounting firms perform 30 percent or 

more of the audit hours in about 17 

percent of audits of EGCs and about 19 

percent of audits of issuers overall. 

These statistics suggest that, when 

compared to issuer audits overall, audits 

of EGCs are less likely to involve the use 

of other firms and, even when they do, 

they typically involve fewer other firms 

and those other firms account for a 

smaller share of total audit hours. 

For individual EGC audits involving 

other firms, the economic impacts of the 

amendments may be more or less 

significant depending on the facts and 

circumstances of a particular audit. In 

addition to the extent of involvement of 

other firms, the benefits and costs also 

depend on the level of risk associated 

with the audit work performed by other 

firms, the current methodologies, and 

the ability to distribute implementation 

costs across engagements. EGCs are 

likely to be newer companies, which 

may increase the importance to 

investors of the external audit to 

enhance the credibility of management 

disclosures.339 All else equal, the 

benefits of the higher audit quality 

resulting from the amendments may be 

larger for EGCs than for non-EGCs. In 

particular, because investors who face 

uncertainty about the reliability of a 

company’s financial statements may 

require a larger risk premium that 

increases the cost of capital to 

companies, the improved audit quality 

resulting from applying the new 

amendments to EGC audits involving 

other firms could reduce the cost of 

capital to those EGCs.340 Moreover, 

because of the scalability of the riskbased requirements, the costs of 

performing the procedures are unlikely 

to be disproportionate to the benefits of 

the procedures. Overall, the 

amendments are expected to enhance 

audit quality and contribute to an 

increase in the credibility of financial 

reporting by EGCs. 

For the reasons explained above, the 

Board believes that the amendments are 

in the public interest and, after 

considering the protection of investors 

and the promotion of efficiency, 

competition, and capital formation, 

recommends that the amendments 

should apply to audits of EGCs. 

Accordingly, the Board recommends 

that the Commission determine that it is 

necessary or appropriate in the public 

interest, after considering the protection 


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Figure 6. Comparison of the Use of Other Auditors in Audits of EGCs and 

Issuers Overall 2021 

Audits of EGCs 

Percentage of issuer audits that use other auditors 14% 

Percentage of audits involving other auditors where: 

2 or more other auditors were involved 35% 

5 or more other auditors were involved 5% 

Percentage of audits involving other auditors where: 

Other auditors performed 10% or more of total audit hours 40% 

Other auditors performed 30% or more of total audit hours 17% 

Source: 2021 Form AP data obtained from PCAOB's AuditorSearch database. 

Audits of 

issuers rncrall* 

26% 

61% 

28% 

52% 

19% 

Note: The term "other auditors" as used in this table includes referred-to auditors and refers only 

to other accounting firms and not individual accountants at those firms. 
Federal Register / Vol. 87, No. 126 / Friday, July 1, 2022 / Notices 39731 

341 17 CFR 200.30–11(b)(1) and (3). 

of investors and whether the action will 

promote efficiency, competition, and 

capital formation, to apply the 

amendments to audits of EGCs. The 

Board stated its readiness to assist the 

Commission in considering any 

comments the Commission receives on 

these matters during the Commission’s 

public comment process. 

III. Date of Effectiveness of the 

Proposed Rules and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Board consents, the 

Commission will: 

(A) by order approve or disapprove 

such proposed rules; or 

(B) institute proceedings to determine 

whether the proposed rules should be 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rules 

are consistent with the requirements of 

Title I of the Act. Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

regulatory-actions/how-to-submitcomments); or 

• Send an email to rule-comments@

sec.gov. Please include File Number 

PCAOB–2022–01 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number PCAOB–2022–01. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

website (http://www.sec.gov/rules/ 

pcaob.shtml). Copies of the submission, 

all subsequent amendments, all written 

statements with respect to the proposed 

rules that are filed with the 

Commission, and all written 

communications relating to the 

proposed rules between the Commission 

and any person, other than those that 

may be withheld from the public in 

accordance with the provisions of 5 

U.S.C. 552, will be available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 

20549–1090, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing will also be 

available for inspection and copying at 

the principal office of the PCAOB. All 

comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

All submissions should refer to File 

Number PCAOB–2022–01 and should 

be submitted on or before July 22, 2022. 

For the Commission, by the Office of the 

Chief Accountant, by delegated authority.341

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–13983 Filed 6–30–22; 8:45 am] 

BILLING CODE 8011–01–P 


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