PCAOB Replaces Statement 2 with Statement 5

The Public Company Accounting Oversight Board adopted Statement 5 (An Audit of Internal Control over Financial Reporting) to replace polarizing Statement 2. PCAOB claims that Statement 5 is principles-based and should allow businesses to detect and correct material misstatements before material misstatements occur. Concurrently, PCAOB suspended requirement of inspections of accounting firms which do not audit publicly-traded companies. PCAOB announced that Standard 5 has four objectives: focus internal control audit efforts on the most important issues; eliminate unnecessary procedures; scale the audit based on corporate size and complexity and simplify the text of the standard.

Gone is the controversy which was PCAOB Statement 2. Will Statement 5 be an improvement--time will tell.