On Thursday, the Society submitted a comment letter in response to the Public Company Accounting Oversight Board’s (“PCAOB”) proposed audit standard on noncompliance with laws and regulations (“NOCLAR”). The PCAOB’s proposal would replace existing Auditing Standard 2405, Illegal Acts by Clients, with a new standard that would fundamentally alter the role of the auditor in ways that would encroach unnecessarily on, and create potential conflicts with, a public company audit client’s compliance and legal functions, the duties of its board of directors, and its attorney-client privilege with external and in-house counsel. The Society’s letter warns that this proposal would greatly increase the cost and complexity of financial statement audits without discernable benefit for the investing public.
The Society’s letter was drafted by Maia Gez and her colleagues at White & Case. More than 40 Society members participated in a working group led by the Securities Law Committee that provided data and reviewed drafts of the comment letter.
So far, more than 120 letters have submitted by auditors, trade associations, and other organizations in response to the NOCLAR proposal. A number of companies, such as Travelers, FedEx, Cigna, Freeport McMoRan, and UnitedHealth, have written individual comment letters on this rulemaking. Some companies, such as Primerica and Williams, have prepared comment letters signed by the chair of their audit committee. The vast majority of comment letters so far have expressed concern about the PCAOB’s proposal. While the official comment deadline has passed, companies are still encouraged to share their views with the PCAOB about how their financial audit process would be impacted by this proposal.