The Public Company Accounting Oversight Board (PCAOB) recently issued and the Securities and Exchange Commission approved rules that will soon require audit firms to disclose engagement partner names as well as other firms that participated in the audit. These rules were created to increase transparency and accountability among audit firms and allow investors access to information on which individual partner was responsible for the audit work in a given year.
To help firms understand the implication of these rules, here is a summary of the new guidance below.
Under the new rules, auditors will be required to file a new PCAOB Form AP, Auditor Reporting of Certain Audit Participants, for all public company audits. The following information must be disclosed on the form:
- Name of the engagement partner and their “Partner ID” (a unique ten-digit identifier that will now need to be assigned by the firm to each partner who serves as engagement partner for issuer audits)
- For other accounting firms participating in the audit for which the responsibility for the audit is not divided:
5 percent or greater participation: The name, city and state (or, if outside the United States, the city and country) of the headquarters’ office, and, when applicable, the Firm ID, and the percentage of total audit hours attributable to each other accounting firm;
Less than 5 percent participation: The number of other accounting firms that participated in the audit whose individual participation was less than 5 percent of total audit hours, and the aggregate percentage of total audit hours of such firms; and
- For other accounting firms participating in the audit for which the responsibility for the audit is divided:
The name, and when applicable, the Firm ID; city and state (or if outside the United States, the city and country) of the office of the other accounting firm that issued the other auditor’s report; and the magnitude of the portion of the financial statements audited by the other accounting firm.
Effective Dates: Phased Approach
Firms will need to start naming engagement partners on the new Form AP, which is available now on the PCAOB website, starting with audits issued on or after Jan. 31, 2017. Other audit firms must be named on the form with the required additional information for public company audits issued on or after June 30, 2017. Form AP must be filed directly with the PCAOB no more than 35 days after the date the auditor’s report is first included in a document filed with the SEC.
Who is Affected?
This change impacts both the accounting firms providing the service and the companies retaining them. The additional filing provides additional transparency to stockholders and others involved with the company.
If you are interested in learning how this new filing will impact your company or to discuss your 10K filings, Freed Maxick wants to help. Contact us for more information.