It is required that you expand and update the draft Capstone Project Report each week for Modules 4-7 of this course. Your report should follow APA writing style. Clearly label the sections so that the instructor knows exactly what topics you are addressing in your discussion.
Submit a draft of the first two sections of the Capstone Project Report.
Background – identifies the problem being investigated
Literature review – summarizes the key research items.
Note: the findings, recommendations, and reference section are supported by the literature research.
M4 Assignment UMBO – 1, 2, 3, 4, 5M4 Assignment PLG – 1, 2, 3, 4M4 Assignment CLO – 1, 2, 3, 5
10/1/23, 1:04 PM
Audit Firms Face Stiffer Mandate to Verify Client Details Under New Rule – WSJ
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https://www.wsj.com/articles/audit-firms-face-stiffer-mandate-to-verify-client-details-under-new-rule-679e30cd
CFO JOURNAL
Audit Firms Face Stiffer Mandate to Verify
Client Details Under New Rule
The Public Company Accounting Oversight Board approved a new rule aimed at
curbing fraud despite concerns from internal auditors over its depiction of their
role in confirming financial information
By Mark Maurer Follow
Updated Sept. 28, 2023 6:13 pm ET
The Public Company Accounting Oversight Board in Washington. PHOTO: ALYSSA SCHUKAR FOR THE WALL
STREET JOURNAL
The Public Company Accounting Oversight Board on Thursday approved a tightening of
requirements around how audit firms obtain and verify outside evidence on their clients,
the first major upgrade to such rules in decades.
The rule, a move to further prevent fraud, concerns a process called confirmation, which is
part of almost every audit. At present, audit firms are required to request that a third party,
such as clients’ lenders or customers, confirm the accuracy of certain information, such as
the amount of accounts receivable. Audit firms are permitted to assume that the lack of a
response is a corroboration of accuracy.
Under the new rule, however, audit firms will have to receive confirmation, usually
electronically, that the stated amounts of cash and cash equivalents held by third parties,
typically lenders, in addition to accounts receivable, are accurate.
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Audit Firms Face Stiffer Mandate to Verify Client Details Under New Rule – WSJ
The PCAOB, which regulates the auditors of U.S.-listed public companies, on Thursday
voted 5-0 to approve the rule, for which it issued a proposal last December.
No longer will audit firms be able to rely solely on “negative-confirmation” requests, that
is, to assume that a stated amount is correct unless a third party objects; the PCAOB said
that silence doesn’t provide sufficient audit evidence. Auditors will be permitted to use
certain alternatives to these requests if they generate as much audit evidence as the new
confirmation requests. The board decided to provide more clarity on the types of audit
procedures auditors could carry out in that situation, for example, obtaining direct access
to information from the client’s lender.
The new rule is the first to be both proposed and finalized under Chair Erica Williams, who
took the helm in January 2022. In June of that year, the board adopted stronger
requirements for lead auditors in supervising other auditors outside their firms, based on a
proposal last revised under then-Acting Chair and current board member Duane DesParte,
whose term expires next month.
“This new standard will help auditors detect fraud and better protect investors now and
into the future,” Williams said, referring to the rule on confirmations.
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Erica Williams, chair of the Public Company Accounting Oversight Board. PHOTO: ALYSSA SCHUKAR FOR THE
WALL STREET JOURNAL
It also marks the first major update to confirmation requirements since the PCAOB adopted
them in 2003, shortly after the board was formed. Over that time, auditors have shifted
from fax machines to newer electronic means of communication. The existing standard is
one of dozens that the U.S. audit watchdog was allowed to copy on an interim basis from
the American Institute of Certified Public Accountants, a professional association. The
AICPA standard itself hadn’t been revised since it was issued in 1992.
The new requirements, pending Securities and Exchange Commission approval, would go
into effect for audits of financial statements for fiscal years ending on or after June 15,
2025.
The rule also covers the nature of external auditors’ relationships with internal auditors in
confirmations, a key point of contention for many auditors. Audit firms will now be
explicitly barred from using a company’s internal auditors to help select items for
confirmation, to send out the request or to handle the responses. These practices weren’t
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intended to be permitted under the current standard and the new standard aims to make
that clear, a senior PCAOB official said.
Internal auditors can still assist with subsequent audit procedures, such as verifying
whether the third party is confirming the amount or identifying problems with the amount,
among others, under the new rule.
In response to the public feedback, the board on Thursday decided to revise the proposed
requirements to emphasize the obligations of external auditors as opposed to restrictions
on internal auditors. The proposal wasn’t intended to cast doubt on the qualifications,
competence or objectivity of internal auditors, according to the rule.
The Institute of Internal Auditors, a professional organization, objected to the proposal in a
February letter to the PCAOB, saying it implied internal auditors were untrustworthy or
incapable of exhibiting due care in performing their duties.
“While internal auditors are not often involved in the confirmation process, they should be
treated without prejudice and external auditors should be trusted to evaluate the
objectivity, competence and independence of the internal audit function from
management,” Anthony Pugliese, chief executive of the IIA, said at the time.
A Wendy’s in Brookhaven, Pa. PHOTO: MATT ROURKE/ASSOCIATED PRESS
Fast-food giant Wendy’s echoed the concern in a letter to the PCAOB that same month,
saying it was troubled by the regulator’s assertions around the internal audit profession,
which will unnecessarily compromise confidence in that work. The company urged the
PCAOB to maintain the existing regulatory scheme regarding internal auditors’ role and
remove claims in the proposal that imply that these auditors may intercept or alter
confirmation data.
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“The potential consequences of this proposal extend beyond the confirmation process and
establish a dangerous precedent regarding the proper evaluation of risk and internal
controls,” Chief Financial Officer Gunther Plosch and Chief Audit Executive Melissa
Clawson said at the time.
Some investors, however, supported the PCAOB’s move to specify internal auditors’
involvement in confirmations. The CFA Institute, which represents investment
professionals, said it is the responsibility of the external auditor to evaluate the results of
the audit procedures performed, not of the internal auditor. The group, in a February letter,
generally backed the overall proposal, but expressed concern about exceptions to certain
confirmations.
On Thursday, the IIA said it appreciated the PCAOB taking its concerns into account. Mat
Young, the group’s executive vice president for global advocacy, policy and stakeholder
relations, added “the new standard clarifies that the PCAOB does not intend to cast doubt
on internal auditors’ trustworthiness, qualifications or objectivity.”
Wendy’s and the CFA Institute didn’t respond to requests for comment Thursday.
Write to Mark Maurer at mark.maurer@wsj.com
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