PCAOB to Consider Changes to Standard Auditor's Report

Chris Gaetano
Published Date:
May 30, 2017

The Public Company Accounting Oversight Board (PCAOB) announced that it plans to consider possible changes to the standard auditor's report that will mandate the inclusion of additional information. It will vote on the proposed standard during its June 1 open meeting. 

The proposed standard, the Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, is meant to provide investors with additional information from auditors, who investors view as uniquely qualified to assess a company's health. 

Under the proposal, the audit report would retain the traditional pass/fail model but would also include critical audit matters and a standardized statement about the role and responsibility of the auditor—including its duty to be independent—and the length of employment of an auditor at a company.

A critical audit matter is defined by the PCAOB 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, and involved especially challenging, subjective, or complex auditor judgment.”

This is the second time the PCAOB has formally proposed making significant changes to the standard auditor's report. The latest recommendation, which was released last May, is less expansive than the 2013 proposal. The recent guidance indicates that critical audit matters are limited to what’s communicated to the audit committee—adding a materiality component to the definition of a critical audit matter, as well as narrowing the definition to only those matters that involved especially challenging, subjective or complex auditor judgment, and revising the related documentation requirement. It does, however, expand the communication requirement to direct the auditor in describing how the critical audit matter was addressed in the audit.

The NYSSCPA was not a fan of the 2013 proposal and didn’t find the second one much of an improvement. In a comment letter written in response to the most recent proposal, the Society said the inclusion of critical audit matters would serve only to confuse investors and dilute the message of a pass/fail test. It also raised concerns that it would increase litigation risk for CPA firms.

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