When the Public Company Accounting Oversight Board issued Auditing Standard no. 5 back in May, it committed to providing additional guidance later in the year for auditors of smaller companies. Now the board has made good on that promise with the publication of a companion piece to AS5 designed to help auditors understand and apply the principles of that standard in the context of smaller, less complex organizations.
To develop the guidance, the PCAOB consulted with a group of auditors who had experience in working with smaller accelerated filers back when AS2 held sway. "Rather than having the PCAOB staff sit around in a room by themselves trying to figure out how to help auditors of public companies, we thought that it would be best to talk to auditors themselves," says Tom Ray, the PCAOB's chief auditor and director of professional standards. The working group "helped us to identify issues that were more difficult for auditors of smaller companies to implement in that environment, and then helped us to brainstorm and develop strategies on how to deal with those issues."
The risks facing smaller companies are substantially different from those confronting large organizations, Ray emphasizes. The guidance document gives examples: In less complex businesses, senior management is often more involved in day-to-day business activities, which may provide additional opportunities for management to override critical controls.
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