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ARTICLE · 12 DECEMBER 2024

US Audit Board Rightly Paused New Plan For Illegal Act Reporting

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

Herbert Smith Freehills Kramer LLP

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The Public Company Accounting Oversight Board's Nov. 15 decision to shelve plans that would have expanded auditors' responsibility to detect and report potentially illegal activities was welcome news.

United StatesAccounting and Audit
Michael Dell
Michael Dell
Tobias B. Jacoby
Tobias B. Jacoby
Catherine F. Engelmann
Catherine F. Engelmann
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The Public Company Accounting Oversight Board's Nov. 15 decision to shelve plans that would have expanded auditors' responsibility to detect and report potentially illegal activities was welcome news.

The proposed changes were untenable. They would have imposed new burdens on auditors to uncover a wide range of possible corporate noncompliance, including violations of regulations that may have only an indirect effect on financial statements. The PCAOB said it would consult with the Securities and Exchange Commission after Jan. 20 before taking further action.

Under today's professional standards, spelled out in AS 2405 and other places, audits involve procedures designed to provide reasonable assurance of detecting illegal acts that have a direct and material effect on the determination of financial statements amounts, such as violations of tax laws affecting accruals.

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