PCAOB offers guidance on Form AP

The Public Company Accounting Oversight Board staff released a new publication Thursday aimed at helping firms complete Form AP.

PCAOB-registered audit firms are required to submit Form AP, Auditor Reporting of Certain Audit Participants, to disclose the names of engagement partners and other accounting firms that participated in their audits of public companies. Form AP disclosures reveal exactly who has participated in the audits of public companies, and omissions on such forms account for a large number of inspection deficiencies from PCAOB inspectors..

The new staff publication, Audit Focus: Form AP, includes reminders for auditors from the PCAOB rules, standards, and staff guidance related to Form AP; the PCAOB staff's perspectives on common deficiencies; and good practices observed by the staff, such as the use of structured templates, guidance on how to complete the templates, or policies mandating review of Form AP information to ensure accuracy and completeness.

The PCAOB staff is continuing to spot a large number of deficiencies related to auditors' Form AP filings. Those deficiencies include inaccurately reporting whether another accounting firm contributed 5% or more of total audit hours, omitting or incorrectly reporting the percentage of total audit hours contributed by a firm, or providing the incorrect date of the audit report, as well as other problems.

For each audit report that they issue for a public company, PCAOB-registered audit firms are supposed to file a Form AP. Through this form, audit firms disclose key information specific to the audit, such as the engagement partner responsible for the audit, details about the audit report, and the participation of other accounting firms in the audit. Such disclosures enable investors, audit committees, and other stakeholders to understand exactly who has participated in the audits of public companies and how the audit work is distributed among those participants.

The report comes only days after the PCAOB sanctioned nine firms in KPMG's network in countries around the world, including Australia, Brazil, Canada, Israel, Italy, Mexico, South Korea, Switzerland and the United Kingdom, and imposed over $3.3 million in fines against them. KPMG is reportedly mulling a reorganization of its global structure in which it will merge several of the member firms in different countries, according to the Financial Times and The Wall Street Journal, reducing the number of units from over 120 to 30 or 40 by the end of 2026.

PCAOB board member Christina Ho criticized the sanctions against the KPMG in a LinkedIn post Tuesday and indicated that she didn't think the Form AP violations were such a big deal.

"Today, the PCAOB's hostility toward the public auditing profession has reached new heights," she wrote, adding a disclaimer that these only represent her views and not the rest of the board. "The chest-thumping news release below stated that PCAOB sanctions 9 foreign affiliates of a Global Network Firm for violations of PCAOB Rules and Standards, including Quality Control. Based on the headline, you would think that these firms committed egregious audit quality violations. NOT SO. These violations were mostly for filing inaccurate form APs, and in many cases, the foreign affiliates filed amended form APs after identifying the inaccuracies themselves. In my view, these violations are akin to parking ticket violations, and the sanctions are punitive and excessive. I also wonder what the opportunity costs are when we spend our resources on this type of violation. Furthermore, it appears that PCAOB is determined to spread an exaggerated narrative suggesting that public company audits and the auditing profession cannot be trusted. This binary, chest-thumping approach of bashing the profession in the name of investor protection will only lead to more polarization and distrust."