On August 13, the Public Company Accounting Oversight Board ("PCAOB" or the “Board”) proposed for public comment a new auditing standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and related amendments (the “proposed standard”) that would require the auditor to disclose additional information in the auditor’s report about the audit and the auditor. Among other matters, the proposed standard would require auditors to include in the audit report a discussion of critical audit matters (“CAM”) specific to the audit.
The proposal follows up the PCAOB’s 2011 Concept Release and public roundtable to seek the views of all stakeholders on potential changes to the auditor’s report.
The proposed standard would retain the existing pass/fail model and the basic elements of the auditor’s report, but would require the auditor to report a wider range of information specific to the particular audit and auditor.
Communicating critical audit matters
The auditor would be required to communicate in a separate section of the audit report the CAM in the audit of the current period’s financial statements based on the results of the audit or evidence obtained. It is expected that in most audits, the auditor would determine that there are CAM. CAM are those matters the auditor addressed during the audit of the financial statements that:
CAM ordinarily are matters of such importance that they are included in the matters required to be (1) documented in the engagement completion document; (2) reviewed by the engagement quality reviewer; (3) communicated to the audit committee; or (4) any combination of the three. It is not expected that each matter included in any one or more of these three sources would be a CAM. The proposed auditor reporting standard identifies factors the auditor should take into account in determining CAM including, for example:
The auditor’s report would (1) identify the CAM; (2) describe the considerations that led the auditor to determine that the matter is a CAM; and (3) refer to the relevant financial statement accounts and disclosures that relate to the CAM, when applicable.
Other provisions of the proposed standard would require:
The proposed standard is applicable to audits conducted in accordance with PCAOB standards; however, the Board is soliciting comments on whether the proposed standard is appropriate for audits of brokers and dealers and audits of emerging growth companies (EGCs).
The proposed standard would be effective, subject to approval by the SEC, for audits of financial statements for fiscal years beginning on or after December 15, 2015.
Comments on the proposed standard are due on December 11, 2013.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the National Professional Services Group (1-973-236-7800).
James D. Anderson
Julie Anne Dilley