In brief: PCAOB proposes significant changes to the auditor's report (No. 2013-40)

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In brief 08/16/2013 by Assurance services
In brief: PCAOB proposes significant changes to the auditor's report (No. 2013-40)

At a glance

The PCAOB proposal would require the auditor to disclose additional information in the auditor’s report, including critical audit matters specific to the audit.

What's new?

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.

What are the key provisions?

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:

  • Involved the most difficult, subjective, or complex auditor judgments
  • Posed the most difficulty to the auditor in obtaining sufficient appropriate audit evidence
  • Posed the most difficulty to the auditor in forming an opinion on the financial statements

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 severity of control deficiencies identified relevant to the matter, if any
  • The nature and significance, quantitatively or qualitatively, of corrected and accumulated uncorrected misstatements related to the matter, if any

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 proposals

Other provisions of the proposed standard would require:

  • A statement containing the year the auditor began serving consecutively as the company’s auditor
  • A statement that the auditor is a public accounting firm registered with the PCAOB (United States) and is required to be independent with respect to the company in accordance with the United States federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") and the PCAOB
  • Enhancements to existing language in the auditor’s report related to the auditor’s responsibilities for fraud and the notes to the financial statements
  • Communication in the auditor’s report related to other information pursuant to another new auditing standard that the PCAOB proposed concurrently, The Auditor’s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report (See In brief 2013-41 dated August 16, 2013 for further details.)

Who's affected?

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).

What's the proposed effective date?

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.

What's next?

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).

Authored by: 

Marc Panucci
Phone: 1-973-236-4885

James D. Anderson
Phone: 1-973-236-5738

Julie Anne Dilley
Phone: 1-646-471-3205