Ritwik Mukherjee, Kolkata, April 20, 2009
Financial Chronicle
Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes Oxley Act of 2002 to oversee auditors of public companies, has announced plans to upgrade the standards for confirming information on a company’s balance sheet from a third party, such as a bank or customer.
It may be mentioned that in the case of Satyam, its auditors from Price Waterhouse (PW) are under scrutiny on why they signed on what turned out to be fabricated sales invoices, bank statements and bank confirmations.
Over 100 countries, including India, are moving toward uniform accounting standard, IFRS, by 2011.
According to an announcement on PCAOB official site, the board, on April 14, sought public comments on possible revisions to the standard on audit confirmations—‘AU Sec. 330-The Confirmation Process’, written over 15 years ago. The board has sought comments from chartered accountants, audit firms, companies and individuals within 45-day period.
Confirmation is a process by which an auditor obtains and evaluates a direct communication from a knowledgeable third party in response to a request for information regarding account balances, transactions or other items that comprise a company's financial statements. Confirmations are an important source of evidence that auditors obtain.
In Satyam’s case, PW has been saying that their auditors had relied on the management’s information. Interestingly, the current standard doesn't address issues such as how an auditor should respond if a company management asks it not to confirm certain accounts.
Now, PCAOB has proposed that, in general, evidence obtained from a knowledgeable source that is independent of the company would be considered more reliable than evidence obtained only from internal company sources.
The board is also considering expanding the definition of confirmation to include direct access to information held by a third party in response to a request for information about a particular item affecting financial statement assertions.
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