Accounting firms face tougher fiduciary duties as the result of three new federal rules.
The Securities & Exchange Commission (SEC) approved guidelines written by the Public Company Accounting Oversight Board (PCAOB), the commission’s Sarbanes-Oxley compliance arm.
Employees of accounting firms and independent contractors can now be held liable if they “negligently, directly and substantially contribute to [SEC reporting] violations,” says PCAOB chair Erica Williams. The SEC updated Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations, for the first time since it went into effect 20 years ago following the passage of the 2002 Sarbanes-Oxley Act.
A few months back, Williams reminded auditors of their duty to find the truth first: “[An] auditor’s professional skepticism extends beyond the evaluation of the sufficiency and appropriateness of audit evidence … [an auditor must exercise] professional skepticism throughout the audit process.”
The vote was a close 3-2. The commissioners who voted no argued the “negligence” rule would lead to colleagues who work on audits not to share their opinions in writing or in person to shield themselves from legal liability.
Accounting Changes Raise the Bar
The SEC also approved the PCAOB’s Accounting Standard (AS) 1000, General Responsibilities of the Auditor in Conducting an Audit. AS 1000 consolidates and replaces prior PCAOB standards 1001, 1005, 1010 and 1015, all of which were in place for 21 years.
AS 1000 shortens the filing deadline from 45 days after an audit is completed to just 14 days. The tighter deadline to file financial reports goes into effect on December 15 for accounting firms that handle audits of more than 100 publicly-traded companies. Smaller firms get an extra year to comply.
And finally, the SEC approved the PCAOB’s amendments to AS 1105, Audit Evidence, and AS 2301, The Auditor’s Response to the Risks of Material Misstatement, to specify and clarify auditors’ responsibilities when using technology-assisted analytical tools such as ChatGPT and similar AI programs.
