AICPA Professional Standards [Subscription]

AICPA Professional Standards contains all of the outstanding pronouncements on professional standards issued by the AICPA. These pronouncements are arranged by subject, with amendments noted and superseded portions deleted.

Contents Include:

• Statements on Auditing Standards and related Interpretations
• Statements on Standards for Attestation Engagements and related Interpretations
• Statements on Standards for Accounting and Review Services and related Interpretations
• AICPA Code of Professional Conduct
• AICPA Bylaws
• Statements on Standards for Consulting Services
• Statements on Quality Control Standards
• Standards for Performing and Reporting on Peer Reviews and related Interpretations
• Statements on Standards for Tax Services and related Interpretations
• Statements on Responsibilities in Personal Financial Planning Practice
• Statement on Standards for Continuing Professional Education Programs and related Policies and Forms

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AICPA Professional Standards

Part I

Applicability of AICPA Professional Standards and Public Company Accounting Oversight Board Standards

Background

As a result of the passage of the Sarbanes-Oxley Act of 2002 (Act), auditing and related professional practice standards to be used in the performance of and reporting on audits of the financial statements of public companies are established by the Public Company Accounting Oversight Board (PCAOB).

The term public companies, as used above, actually encompasses more entities than just public companies. To state the authority of the PCAOB more precisely — the Act authorizes the PCAOB to establish auditing and related attestation, quality control, ethics, and independence standards to be used by registered public accounting firms in the preparation and issuance of audit reports for entities subject to the Act or the rules of the Securities and Exchange Commission (SEC).

Accordingly, public accounting firms registered with the PCAOB are required to adhere to all PCAOB standards in the audits of issuers, as defined by the Act, and other entities when prescribed by the rules of the SEC (hereinafter collectively referred to as issuers).

For audits of entities not subject to the Act or the rules of the SEC (hereinafter referred to as nonissuers), the preparation and issuance of audit reports must be conducted in accordance with the AICPA Code of Professional Conduct and the standards promulgated by the AICPA Auditing Standards Board (ASB). Audits of nonissuers remain governed by generally accepted auditing standards (GAAS) and Statements on Quality Control Standards as issued by the ASB.

Who Is an Issuer?

The term issuer means an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)), the securities of which are registered under section 12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.

Standards Applicable to the Audits of Nonissuers

With the formation of the PCAOB, the ASB was reconstituted and its jurisdiction amended to recognize the ASB as a body with the authority to promulgate auditing, attestation and quality control standards relating to the preparation and issuance of audit reports for nonissuers.

Failure to follow ASB standards in the audit of a nonissuer would be considered a violation of Rule 201, General Standards [ET section 201.01], and/or Rule 202, Compliance With Standards [ET section 202.01], of the AICPA’s Code of Professional Conduct (AICPA Code).

As a caution to readers, pursuant to SAS No. 95, Generally Accepted Auditing Standards [AU section 150], interpretative publications are recommendations on the application of SASs in specific circumstances, including engagements for entities in specialized industries. Interpretative Publications, which include auditing interpretations, auditing guidance in Audit and Accounting Guides (Guides), and auditing guidance found in Statements of Position (SOPs), are issued under the authority of the ASB. The auditor should identify Interpretative Publications applicable to his or her audit. If the auditor does not apply the auditing guidance included in an applicable Interpretative Publication, the auditor should be prepared to explain how he or she complied with the SAS provisions addressed by such auditing guidance.

The ASB will continue to issue SASs and Interpretative Publications that relate to audits of nonissuers and auditors should be alert to those issuances.

Standards Applicable to the Audits of Issuers

Rule 3100 issued by the PCAOB (see PCAOB Release No. 2003-009) generally requires all registered public accounting firms to adhere to the PCAOB’s standards in connection with the preparation or issuance of any audit report on the financial statements of an issuer. Rule 3100 requires registered public accounting firms and their associated persons to comply with all applicable standards. Accordingly, if the PCAOB's standards do not apply to an engagement or other activity of the firm, Rule 3100, by its own terms, does not apply to that engagement or activity.

Compliance With Standards Applicable to the Audits of Issuers

Any registered public accounting firm or person associated with such a firm that fails to adhere to applicable PCAOB Standards in connection with an audit of the financial statements of an issuer may be the subject of a PCAOB disciplinary proceeding in accordance with Section 105 of the Act. In addition, the Act provides that any violation of the PCAOB’s Rules is to be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq., or the rules and regulations issued thereunder, and any person violating the PCAOB's Rules "shall be subject to the same penalties, and to the same extent, as for a violation of [the Exchange] Act or such rules or regulations."

Rules 201 [ET section 201.01] and 202 [ET section 202.01] of the AICPA's Code of Professional Conduct require a member who performs auditing and other professional services to comply with standards promulgated by bodies designated by AICPA Council. AICPA Council has designated the PCAOB as a body with the authority to promulgate auditing and related attestation standards, quality control, ethics, independence and other standards relating to the preparation and issuance of audit reports for issuers.

The AICPA’s Professional Ethics Division is able to hold an AICPA member who performs audits of the financial statements of issuers accountable under Rules 201 [ET section 201.01] and 202 [ET section 202.01] of the AICPA's Code of Professional Conduct for compliance with PCAOB’s auditing and related professional practice standards when performing such audits.

Major Existing Differences Between AICPA Standards and PCAOB Standards

As this publication was being finalized, the major differences between generally accepted auditing standards and final PCAOB standards approved by the SEC are as follows:

• Audit Documentation. PCAOB Auditing Standard No. 3, Audit Documentation, is applicable to audits of issuers. SAS No. 103, Audit Documentation [AU section 339], which supersedes SAS No. 96, Audit Documentation [AU section 339A], is applicable to audits of nonissuers. SAS No. 103 is effective for audits of financial statements for periods ending on or after December 15, 2006. Earlier application is permitted.

• Audit of Internal Control. In connection with the requirement of Section 404(b) of the Sarbanes-Oxley Act that an issuer's independent auditor attest to and report on management's assessment of the effectiveness of internal control, PCAOB Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, establishes requirements and provides direction that apply when an auditor is engaged to audit the internal control over financial reporting and to perform that audit in conjunction with the audit of an issuer's financial statements. PCAOB conforming amendments related to PCAOB Auditing Standard No. 2 supersedes SAS No. 60, Communication of Internal Control Related Matters Noted in an Audit, and AT Section 501, Reporting on an Entity’s Internal Control Over Financial Reporting.

• References in Auditor's Reports. PCAOB Auditing Standard No. 1 requires registered public accounting firms to include in their reports on engagements performed pursuant to the PCAOB's auditing and related professional practice standards, including audits and reviews of financial statements, a reference to the standards of the Public Company Accounting Oversight Board (United States).

• Concurring Partner. Rule 3400T requires the establishment of policies and procedures for a concurring review (generally the SECPS membership rule). fn 2

• Communication of Firm Policy. Rule 3400T requires registered firms to communicate through a written statement to all professional firm personnel the broad principles that influence the firm’s quality control and operating policies and procedures on, at a minimum, matters that relate to the recommendation and approval of accounting principles, present and potential client relationships, and the types of services provided, and inform professional firm personnel periodically that compliance with those principles is mandatory (generally the SECPS membership rule).

• Affiliated Firms. Rule 3400T requires registered firms that are part of an international association to seek adoption of policies and procedures by the international organization or individual foreign associated firms consistent with PCAOB standards.

• Partner Rotation. Rule 3600T requires compliance with the SEC’s independence rules which include partner rotation.

• Continuing Professional Education (CPE) Requirements. Rule 3400T requires registered accounting firms to ensure that all of their professionals participate in at least 20 hours of qualifying CPE every year (generally the SECPS membership rule).

• Independence Matters. Rule 3600T requires compliance with Standards Nos. 1, 2, and 3, and Interpretations 99-1, 00-1, and 00-2 of the Independence Standards Board. Also, to the extent that a provision of the SEC's independence rules or policies are more restrictive — or less restrictive — than the PCAOB's interim independence standards, a registered public accounting firm shall comply with the more restrictive requirement.

Standards Applicable if a Nonissuer’s Financial Statements Are Audited in Accordance With Both GAAS and PCAOB Auditing Standards

The Audit Issues Task Force (a task force of the ASB) has issued Auditing Interpretation No. 18, "Reference to PCAOB Standards in an Audit Report on a Nonissuer," of SAS No. 58, Reports on Audited Financial Statements [AU section 9508.89–.92], that addresses the question of which standards are applicable and how should the auditor report if an auditor is engaged to perform an audit of a nonissuer in accordance with GAAS and PCAOB auditing standards. The Interpretation states that an auditor may indicate that the audit was conducted in accordance with GAAS and another set of auditing standards. If the auditor conducted the audit in accordance with generally accepted auditing standards and the auditing standards of the PCAOB, the auditor may indicate in the auditor's report that the audit was conducted in accordance with both sets of standards. The Interpretation provides example report language.

AICPA Standards and the Audits of Issuers

If a registered public accounting firm performs an audit or review of an issuer in accordance with PCAOB standards, the auditor does not need to follow standards promulgated by the ASB. However, AICPA members are required to comply with the AICPA Code in addition to the ethics and independence rules and standards required by the SEC and PCAOB.

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Footnotes (Part I — Applicability of AICPA Professional Standards and Public Company Accounting Oversight Board Standards):
fn 1 Effective January 1, 2004, the AICPA Center for Public Company Audit Firms restructured and replaced the SECPS.
fn 2 Firms that were not members of the AICPA’s SECPS as of April 16, 2003 do not have to comply with this requirement.
Copyright © American Institute of Certified Public Accountants, Inc. All Rights Reserved
January 2007