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Business Law Today

April 2024

April 2024 in Brief: Securities Law

Alan J Wilson and Rani Doyle

April 2024 in Brief: Securities Law

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PCAOB Proposes New Audit Firm Disclosures

By Thomas W. White, Retired Partner, WilmerHale

The Public Company Accounting Oversight Board (“PCAOB”) has issued two proposals that, if adopted, would substantially expand public disclosures and confidential reporting by registered public accounting firms. According to PCAOB Chair Erica Y. Williams, the proposals, which were issued on April 9, “would strengthen PCAOB oversight and equip investors, audit committees, and others with clear, consistent, and actionable data related to the audit.”

Standardized Firm and Engagement Metrics. The first proposal would require certain registered firms to disclose a standardized set of information about the firms’ audits and audit practices. According to the PCAOB, while some firms voluntarily provide certain firm-level metrics today, the number of firms doing so is small, the substance of the disclosures is inconsistent across firms, and, because the disclosures are voluntary, they are subject to revision or discontinuance.

The proposed disclosures would only be required from registered firms that act as lead auditors for one or more accelerated filers or large accelerated filers (i.e., the largest firms). Separate reports would cover both firm-level and engagement-level information. The proposed metrics would cover (1) partner and manager involvement, (2) workload, (3) audit resources, (4) experience of audit personnel, (5) industry experience of audit personnel, (6) retention and tenure, (7) audit hours and risk areas (engagement-level only), (8) allocation of audit hours, (9) quality performance ratings and compensation (firm-level only), (10) audit firms’ internal monitoring, and (11) restatement history (firm-level only).

Expanded Firm Reporting. The second proposal would amend the PCAOB’s current annual and special reporting forms to expand the information required to be reported by registered firms. The proposal covers the following areas: (1) additional information regarding audit fees, and, for the largest firms, confidential submission of annual financial statements to the PCAOB; (2) audit firm governance information; (3) information about accounting firm networks; (4) shortening the time for filing special reports and requiring confidential special reports for events material to a firm’s organization, operations, liquidity or financial resources, or provision of audit services; and (4) reporting regarding cybersecurity risk and significant cybersecurity events.