SEC adopts new rules for some public-company audits

The Securities and Exchange Commission has approved new standards for audits of public companies that involve more than one audit firm. The updated rules, which the Public Company Accounting Oversight Board (PCAOB) adopted in June, require that a lead auditor supervise other auditors’ work to ensure they follow policies and procedures. The lead auditor also has to obtain “written affirmation” that the other auditors “possess the knowledge, skill, and ability to perform assigned tasks.”

SEC chairman Gary Gensler said in a statement that some 26% of all public- company audits involve more than one auditing firm, and that audits have become increasingly complex, particularly for companies that have international operations.

“Given the challenges that such multi-firm audits present, it is important that there be robust standards for how lead auditors supervise, communicate with, and coordinate with other auditors on the audit engagement,” he said.

The new standards also require lead auditors to “prioritize their supervisory activities around higher-risk areas in the audit,” according to Gensler.

The PCAOB was established by the Sarbanes-Oxley Act, and is responsible for overseeing audits of public companies. Gensler had criticized the PCAOB in July for being “too slow” to update auditing standards.

“It matters who audits the auditors,” Gensler said in a speech to the Center for Audit Quality to mark the 20th anniversary of Sarbanes-Oxley. The new guidelines are the first issued by the PCAOB under chairwoman Erica Williams.—KL