PCAOB Auditing Standard No. 5 Overview
The Public Company Accounting Oversight Board (PCAOB) was formed to protect the interests of investors and further the public interest in the preparation of informative, fair and independent audit reports. PCAOB was created under SOX as a private sector, non-profit corporation to oversee the auditors of public companies. It establishes auditing standards and provides direction to auditors.
The PCAOB adopted Auditing Standard No. 5, entitled “An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements” in May 2007. This standard supersedes the previous standard, Auditing Standard No. 2, and is effective for all audits of internal controls for fiscal years ending on or after November 15, 2007.
The four main goals of Auditing Standard No. 5 are to:
- Focus internal control audit on the most critical areas and areas of greatest risk. This includes focusing audit scope, improved audit planning, and providing guidance on alternatives for addressing lower risk areas.
- Eliminate unnecessary procedures. The PCAOB has removed the previous standard’s detailed requirements to evaluate management’s own evaluation process and removing the requirement to render an opinion on the adequacy of management’s process.
- Make the audit scalable. The updated standard provides details on how to scale the audit based on the organization’s size and complexity, allowing for an approach that is better tailored for smaller and less complex organizations.
- Simplify the standard. The new standard is shorter and more readable. This includes text reordering and reduction of duplication.