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Sarbanes Oxley Act -
Auditing Standards |
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Public
Company Accounting Oversight
Board
Bylaws
and Rules – Standards –
AS3
June
9, 2004
AUDITING AND RELATED
PROFESSIONAL PRACTICE
STANDARDS
Auditing
Standard No. 3 – Audit
Documentation
Section 802 of
Sarbanes-Oxley and the SEC's Implementing
Rule
A42.
Many commenters had concerns about the
similarity in language between
the
proposed
standard and the SEC final rule (issued in
January 2003) on record
retention,
Retention of Records
Relevant to Audits and
Reviews.4/ Some
commenters
recommended
that the PCAOB undertake a project to identify
and resolve all
differences
between the proposed standard and the SEC's
final rule. These
commenters
also suggested that the Board include similar
language from the SEC final
rule,
Rule 2-06 of Regulation S-X, which limits the
requirement to retain some
items.
4/
SEC Regulation S-X, 17 C.F.R. § 210.2-06 (SEC
Release No. 33-8180,
January
2003). (The final rule was effective in March
2003.)
Differences between
Section 802 and This
Standard
A43.
The objective of the Board's standard is
different from the objective of the
SEC's
rule
on record retention. The objective of the
Board's standard is to require auditors
to
create
certain documentation
to enhance the quality of audit documentation,
thereby
improving
the quality of audits and other related
engagements. The records
retention
section
of this standard, mandated by Section 103 of the
Act, requires registered public
accounting
firms to "prepare and maintain for a period of
not less than 7 years, audit
work papers, and
other information related to any audit
report, in sufficient
detail to
support
the conclusions reached in such report."
(emphasis added)
A44.
In contrast, the focus of the SEC rule is to
require auditors to retain
documents
that
the auditor does create, in order that those
documents will be available in the
event
of
a regulatory investigation or other proceeding.
As stated in the release
accompanying
the SEC's final rule (SEC Release No.
33-8180):
Section
802 of the Sarbanes-Oxley Act is intended to
address the
destruction
or fabrication of evidence and the preservation
of "financial
and
audit records." We are directed under that
section to promulgate
rules
related to the retention of records relevant to
the audits and reviews
of
financial statements that companies file with
the Commission.
A45.
The SEC release further states, "New rule 2-06
... addresses the retention of
documents
relevant to enforcement of the securities laws,
Commission rules, and
criminal
laws."
A46.
Despite their different objectives, the proposed
standard and SEC Rule 2-06 use
similar
language in describing documentation generated
during an audit or review.
Paragraph
4 of the proposed standard stated that, "Audit
documentation ordinarily
consists
of memoranda, correspondence, schedules, and
other documents created or
obtained
in connection with the engagement and may be in
the form of paper, electronic
files,
or other media." Paragraph (a) of SEC Rule 2-06
describes "records relevant to
the
audit or review" that must be retained as,
(1)
"workpapers and other documents that form the
basis of the audit or review and
(2)
memoranda, correspondence, communications, other
documents, and records
(including
electronic records), which: [a]re created, sent
or received in connection
with
the audit or review and [c]ontain conclusions,
opinions, analyses, or financial data
related
to the audit or review. ..." (numbering and
emphasis added).
A47.
The SEC makes a distinction between the
objectives of categories (1) and
(2).
Category
(1) includes audit documentation. Documentation
to be retained according to
the
Board's standard clearly falls within category
(1). Items in category (2)
include
"desk
files" which are more than "what traditionally
has been thought of as
auditor's
'workpapers'."
The SEC's rule requiring auditors to retain
items in category (2) have the
principal
purpose of facilitating enforcement of
securities laws, SEC rules, and
criminal
laws.
This
is not an objective of the Board's standard.
According to SEC Rule 2-06,
items
in category (2) are limited to those which: (a)
are created, sent or received
in
connection
with the audit or review, and (b) contain
conclusions, opinions, analyses,
or
financial
data related to the audit or review. The
limitations, (a) and (b), do not apply
to
category
(1).
A48.
Paragraph 4 of the final standard deletes the
reference in the proposed
standard
to
"other documents created or obtained in
connection with the engagement."
The
Board
decided to keep "correspondence" in the standard
because correspondence can
be
valid audit evidence. Paragraph 20 of the
standard reminds the auditor that he
or
she
may be required to maintain documentation in
addition to that required by
this
standard.
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