The PCAOB adopted a new auditing standard to enhance the auditor’s report, including communicating critical audit matters and disclosure of auditor tenure. For more information, watch PwC US Chief Auditor Len Combs' video update below and read our In brief article.
Hi, I’m Len Combs, PwC’s US Chief Auditor.
The PCAOB just issued a new auditing standard intended to enhance auditor reporting on financial statement audits. The adoption of this standard concluded a multi-year effort which began in 2010, and considered input from stakeholders throughout the capital markets. This standard will require reporting that is directionally similar to what we have seen in the U.K. for several years and more recently in other countries.
We have been supportive of the PCAOB’s efforts to respond to investors’ desires for enhanced transparency and relevancy in auditor reporting. With the issuance of this new standard, it will be important for auditors, management, audit committees, investors, and regulators to continue engaging on the topic throughout the implementation. Doing so will help to ensure there is a mutual understanding of the requirements and to help realize the intended benefits of the new reporting model.
Although the new standard retains today’s pass / fail model, the most notable new requirement is for auditors to communicate Critical Audit Matters - or CAMs - in their audit reports. These are audit matters that are or should be communicated to the Audit Committee and involved especially challenging, subjective, or complex auditor judgments.
The new standard is subject to SEC approval, which will include a notice and public comment process. If approved by the SEC in the months ahead, the initial phase of changes will come into effect for 2017 calendar year-end audits.
These changes include: Disclosure of auditor tenure; and changes to clarify our role and responsibilities and standardize the form of the report, making it easier to read.
The most significant change to the auditor’s report will be part of the second phase of implementation. Auditors will be required to communicate CAMs and how they were addressed in the audit. Importantly, auditors will also be required to refer to management’s related disclosures.
While CAMs won’t be required for audits of large accelerated filers until periods ending June 30, 2019 and then for 2020 calendar year-end audits of certain other filers, auditors are already beginning work on implementation efforts.
These changes are the first significant changes to auditor reporting in over 70 years. We’ll plan to continue our dialogue with you through the implementation. We recognize that many of you will have questions about the new standard. For more information you can refer to our In Brief publication available on CFOdirect.com, or speak with your PwC professional to begin the dialogue.
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