Innovation Update

Noncompliance with laws and regulations – CFEs’ elevated audit role under proposed PCAOB rules

CFEs, lawyers and auditors – be on alert! The proposed PCAOB’s amendments to its auditing standards related to an auditor’s consideration of a company’s noncompliance with laws and regulations about financial statement audits will have a profound impact on our profession, bringing fraud risk management front and center.

Fraud risk was a top priority in 2023 for the Public Company Accounting Oversight Board (PCAOB), the independent regulatory body established by U.S. Congress to oversee audits of public companies and broker-dealers. The PCAOB is close to ratifying new amendments this summer or fall related to noncompliance with laws and regulations (NOCLAR) that could make legal and investigative professionals, especially Certified Fraud Examiners (CFEs), a critical part of the audit team.

The proposed PCAOB changes

On June 6, 2023, the PCAOB proposed amendments to its auditing standards related to an auditor’s consideration of a company’s NOCLAR in the performance of a financial statement audit to establish and strengthen requirements for (1) identifying, through inquiry and other procedures, laws and regulations with which noncompliance could have a material effect on the financial statements; (2) assessing and responding to the risks of material misstatement arising from noncompliance with laws and regulations; (3) identifying whether there’s information indicating that noncompliance has occurred or may occur; and (4) evaluating and communicating when the auditor identifies or otherwise becomes aware of information indicating that noncompliance with laws and regulations, including fraud, has or may have occurred. [See “PCAOB Release No. 2023-003.”] 

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