PCAOB Standards Setting
Section 103 of the Sarbanes-Oxley Act of 2002 charges the PCAOB with creating auditing and other related standards for registered public accounting firms when preparing audits. It also authorizes the Board to create any rules it deems necessary to ensure auditor independence. Section 103 also requires the Board to create expert advisory groups so as to help in setting these standards and help in creating the process and procedures used to create the standards. The Board has convened a Standing Advisory Group (SAG) which advises the Board on the establishment of auditing and related professional practice standards. The Board’s staff is involved in drafting proposed standards and in might also create groups to assist the staff with drafting language. While the Board will officially establish standards, it encourages the public to be a part of the process. The Board encourages proposals and recommendations from the members of the accounting profession, investors, preparers of financial statements, and others. The development process generally includes input from the SAG and may also include input from other public forums. When development is complete, PCAOB staff will recommend a proposed standard in an open meeting. Once approved by the Board, it will be published for public comment. After comments have been reviewed by the Board and its staff, and the proposed standard has been adjusted to integrate the comments, the staff will recommend a final standard. Final standards adopted by the PCAOB are submitted to the Securities and Exchange Commission (SEC) for approval. They do not become effective unless approved by the SEC.
From the PCAOB Website
Section 103(a)(1) of the Sarbanes-Oxley Act of 2002 (the Act) directs the Board to establish auditing and related attestation standards, quality control standards, and ethics standards to be used by registered public accounting firms in the preparation and issuance of audit reports, as required by the Act or the rules of the Commission, or as may be necessary or appropriate in the public interest or for the protection of investors. Similarly, Section 103(b) authorizes the Board to establish such rules as may be necessary or appropriate to implement the auditor independence requirements in, or as authorized under, Title II of the Act, Auditor Independence.
Section 103(a)(4) directs the Board to convene such expert advisory groups as may be appropriate to aid in standard-setting and affords the Board considerable discretion in determining the procedures by which it will develop and adopt auditing and related professional practice standards. The Board has convened a Standing Advisory Group (SAG) to advise the Board on the establishment of auditing and related professional practice standards.
While the Board will, by rule, establish standards, it recognizes that the development of such standards should be an open, public process in which investors, the accounting profession, the preparers of financial statements, and others have the opportunity to participate.
The Board’s staff is actively involved in drafting proposed standards and in advising the Board in its standard-setting. The Board also encourages proposals and recommendations on its standard-setting agenda and standards development projects from the public. The Board also may establish one or more ad hoc task forces to assist the staff with the drafting of technical language, among other things.
After completing the development process, which ordinarily includes consultation with the SAG and may include discussion in other public forums such as roundtable discussions, the Board’s staff recommends to the Board in an open meeting a proposed standard. Proposed standards approved by the Board in an open meeting ordinarily will be published for public consideration and comment. After the Board and its staff evaluate the comments received, the Board’s staff recommends to the Board in an open meeting a final standard, revised as necessary and appropriate based on the evaluation of the comments received. Final standards adopted by the Board are submitted to the Securities and Exchange Commission for approval and do not become effective unless approved by the Commission.