PCAOB Tries Again to Change Audit Report Format
The Public Company Accounting Oversight Board is taking another stab at overhauling the auditor’s reporting model.
The PCAOB first proposed changes in audit reports in 2013 and heard extensive feedback on the proposals. On Wednesday the board reproposed the standard, offering ways to enhance the auditor's report to make it more informative for investors by requiring auditors to provide information on critical audit matters. The PCAOB is again asking again for public comments on the latest proposal.
“In today’s complex economy, and particularly in light of lessons learned after the financial crisis, investors want a better understanding of the judgments that go into an audit opinion,” said PCAOB Chairman James R. Doty in a statement. “This proposal delivers on the intention of Congress to further the public interest in the preparation of more informative audit reports for public investors.”
The PCAOB is reproposing the auditor reporting standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, along with related amendments to certain other PCAOB standards.
The revised proposal would retain the pass/fail model in the existing auditor's report, but would provide additional information in the report, such as the communication of critical audit matters arising from the audit and new elements related to auditor independence and auditor tenure.
The PCAOB received a great many comments in response to its original August 2013 proposal on the auditor's reporting model, with some saying the changes went too far and others saying they didn’t go far enough. After analyzing the comments and conducting additional outreach, the concept of critical audit matters has been carried forward from the 2013 proposal although the reproposed requirements have been refined in several respects.
Critical Audit Matters
Those include limiting the source of potential critical audit matters to matters communicated or required to be communicated to the audit committee; adding a materiality component to the definition of a critical audit matter; narrowing the definition to only those matters that involved especially challenging, subjective or complex auditor judgment; revising the related documentation requirement; and expanding the communication requirement to require the auditor to describe how the critical audit matter was addressed in the audit. Read more on Accounting Today.