CAQ Urges PCAOB to Consider Impact of Standard Setting on Small Firms

A nonpartisan public policy organization, the Center for Audit Quality ("CAQ"), criticized the pace of the Public Company Accounting Oversight Board's ("PCAOB") standard setting activities, arguing that the PCAOB should take into consideration "the cumulative impact of [its] activities on smaller and medium-sized firms."

In a comment letter, the Smaller Firm Task Force ("SFTF") of the CAQ stated that, in recent years, the PCAOB set more standards "this year than ... in the last ten." The SFTF said that, while it supports the PCAOB's attempt to modernize standards, the "pace and volume" of the PCAOB's rule changes are harmful to smaller firms, companies and capital markets. The SFTF recommended:

• Engagement with smaller firms. The SFTF recommended that the PCAOB engage more with smaller firms. The SFTF said that more engagement would enable the PCAOB to better understand the "issues facing smaller firms."
• Longer comment periods. The SFTF suggested increasing the comment period from 60 to 90- or 120-days considering that smaller firms have fewer resources to "provide meaningful feedback" on proposed rules in the middle of busy accounting seasons.
• Include "unique costs to smaller firms" in economic analyses. The SFTF urged the PCAOB to more fully consider the costs and benefits to smaller firms when undertaking economic analysis for rulemaking proposals.
• Concept releases. The SFTF urged the PCAOB to seek stakeholder input through the issuance of concept releases before developing auditing standards or proposed rules.
• Smaller firm office or advisory committee. The SFTF urged the PCAOB to create a specific office or advisory committee for smaller audit firms.
• Evaluate the scalability of PCAOB standards and rules. The SFTF recommended that the PCAOB "conduct a holistic study" to ensure that standards and rules are not confusing, duplicative and are consistent. The SFTF encouraged the PCAOB to focus on whether: (i) the thresholds for deciding which firms are impacted by PCAOB rules are reasonable, (ii) compliance deadlines are reasonable, (iii) reporting periods are consistent, (iv) there is harmony across "other auditing standard-setters," and (v) the PCAOB's rules and standards are consistent with the SEC's rules.