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The Daily

PCAOB Issues Revised Proposal for Expanded Auditor's Report

Chris Gaetano
Published Date:
May 12, 2016
board_chairman_dotyThe Public Company Accounting Oversight Board (PCAOB) yesterday agreed to re-propose a measure that would retain the pass/fail audit report model, but would need to include further information that the board felt was relevant to investors. This further information includes: 

* Critical audit matters (defined as "any matter that was communicated or required to be communicated to the audit committee and that: relates to accounts or disclosures that are material to the financial statements; or involved especially challenging, subjective, or complex auditor judgment); 

*  a standardized statement about the role and responsibility of the auditor, including its duty to be independent; and 

* how long the auditor has been an auditor for the company. 

The proposal would also require that the opinion be the first section of the auditor's report and require section titles to guide the reader. 

“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.  “This proposal delivers on the intention of Congress to further the public interest in the preparation of more informative audit reports for public investors.” 

When the proposal was first put forward in 2013, it was met with significant concern from the audit community. The NYSSCPA itself panned the proposal in a December 2013 comment letter which expressed skepticism that the additional information would be useful to investors, and that even if it were the case "We do not believe it would be productive or appropriate for auditors to provide information in audit reports that is intended to help investors or other users to assess an audit."

The Society also raised concern about the potential litigation risk for auditors that might accompany this proposal if it were implemented, a possibility that was explored in a 2014 issue of the Trusted Professional