ABA, associations: Proposed auditor standards vague, overly broad

A group of 20 trade associations, including the American Bankers Association, joined together Monday to raise concerns with a proposal to expand the requirements for auditors to identify, evaluate and communicate all company violations of laws and regulations. The Public Company Accounting Oversight Board issued the proposed rule in June after a split 3-2 vote in which the dissenting board members expressed serious concerns. In their letter, the associations—which represent a majority of U.S. auditors and businesses subject to audits under PCAOB standard—said the language in the rule is vague and threatens to turn routine audits into wide-ranging investigations.

“With respect to the legal function, auditors may be put into a position to second-guess a company’s own legal counsel regarding whether noncompliance may have occurred,” the groups said. “With respect to the management function, the requirement that auditors perform ‘enhanced risk assessment procedures’ could result in auditors second-guessing how management allocates the company’s financial and human resources. This would not only blur responsibility between the legal, management and audit functions, but would also divert auditors’ time, attention and resources away from auditing financial statements.”

The groups also noted that U.S. companies already have stringent responsibilities for legal and regulatory compliance, as well as a series of appropriate ‘checks’ against noncompliance. “Various federal and state regulatory authorities in the United States have a responsibility to examine, monitor and, where appropriate, bring enforcement actions against companies that do not adhere to laws and regulations,” they said. “Moreover, given the many and varied private rights of action available against corporations in the United States, companies are subject to even further scrutiny and liability for noncompliance.”