On November 12, the PCAOB held a meeting of the Standards and Emerging Issues Advisory Group. During that meeting, Chief Auditor Barbara Vanich stated that her office intends to follow through on its previously announced plans to set standards on the auditor’s consideration of the company’s noncompliance with laws and regulations (“NOCLAR”) despite the upcoming change in administration. We previously reported on the proposed NOCLAR standard in the Auditor Liability Bulletin on June 2, 2023, June 9, 2023, and March 1, 2024.

On the same day, the PCAOB published a Spotlight publication titled “Auditor Responsibilities for Detecting, Evaluating, and Making Communications About Illegal Acts.” This publication is intended to remind auditors of their existing responsibilities under both federal securities laws and PCAOB standards. These responsibilities include to (1) detect illegal acts, (2) evaluate information indicating that an illegal act has occurred, (3) determine whether it is likely an illegal act occurred and, if so, consider the possible impact on financial statements, and (4) make appropriate communications to management, the audit committee, and the SEC, if required.

The Spotlight summarizes auditors’ responsibilities regarding illegal acts under both Section 10A of the Private Securities Litigation Reform Act of 1995 and AS 2405, Illegal Acts by Clients. Auditors are expected to conduct procedures to detect illegal acts, including those with direct or indirect impacts on financial statements, evaluate possible illegal acts once identified, and communicate information about possible or actual illegal acts to management, the audit committee, and in some cases the board of directors. Under some circumstances, the auditor is also required to notify the SEC of the illegal act. If an auditor concludes that an illegal act has a material effect on the financial statements and has not been properly accounted for or disclosed, the auditor is further required to express a qualified or adverse opinion.

A recording of the November 12 meeting can be found here. A copy of the Spotlight can be found here.