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When to Conduct Audits Under PCAOB Standards and GAAS


Client and cpaYour client calls you up asking you to conduct the next audit of their financial statements in accordance with Public Company Accounting Oversight Board standards, however, the entity is not an issuer (as defined by the U.S. Securities and Exchange Commission), nor a broker or dealer registered with the SEC. The audit is not within the jurisdiction of the PCAOB. This seems like a strange request.  Perhaps the client is a clearing agency or futures commission merchant registered with the Commodity Futures Trading Commission, which requires that entities registered with it have an audit performed in accordance with PCAOB standards. Maybe the client has entered into a contractual agreement that requires an audit conducted under PCAOB standards. Or maybe, for whatever reason, the client just wants an audit conducted under PCAOB standards.

Unless the audit is within the jurisdiction of the PCAOB, you are required to conduct the audit in accordance with Generally Accepted Auditing Standards. You may also conduct the audit in accordance with PCAOB standards, but you cannot conduct that audit only in accordance with PCAOB standards.

The PCAOB determines which audits are within its jurisdiction, including audits of the financial statements of issuers and nonissuer brokers and dealers registered with the SEC. A regulator (other than the PCAOB) requiring that the audit be conducted in accordance with PCAOB standards does not make the audit fall within the jurisdiction of the PCAOB. Therefore, even though the regulator— for example, the CFTC— requires an audit to be conducted in accordance with PCAOB standards, that audit is required to also be conducted in accordance with GAAS.

Statement on Auditing Standards (SAS) No. 131, Amendment to Statement on Auditing Standards No. 122 Section 700, Forming an Opinion and Reporting on Financial Statements, clarifies the format of the auditor’s report that should be used when the audit is not under the PCAOB’s jurisdiction but the audit is conducted in accordance with the standards of the PCAOB (and, as required, GAAS).

When the auditor refers to the standards of the PCAOB in addition to GAAS in the auditor’s report, the auditor should use the form of report required by the standards of the PCAOB, amended to state that the audit was also conducted in accordance with GAAS.

The amendments take effect for audits of financial statements for periods ending on or after June 15, 2016. Early application is permitted.

Ahava Goldman, Senior Technical Manager- Audit & Attest Standards, American Institute of Certified Public Accountants.

CPA and client image courtesy of Shutterstock

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