In brief: PCAOB proposes new auditing standard on other information (No. 2013-41)

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In brief 08/16/2013 by Assurance services
In brief: PCAOB proposes new auditing standard on other information (No. 2013-41)

At a glance

The proposal would require the auditor to perform additional procedures with respect to other information, and to communicate certain information in the auditor’s report.

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 Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report, and related amendments (the "proposed standard") that would require the auditor to perform additional procedures with respect to other information, and to communicate certain information in the auditor’s report.

The PCAOB issued the proposed standard concurrently with its proposed auditing standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion (See In brief 2013-40 dated August 16, 2013 for further details).

What are the key provisions?

The proposed standard would apply to the auditor’s responsibility with respect to other information in a company’s annual report that is filed with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 and that contains the company’s audited financial statements and the related auditor’s report. As a result, it applies to other information that is incorporated by reference and is available prior to the issuance of the auditor's report but does not extend to annual reports that are distributed by other means, such as corporate websites or social media. It also does not apply to other information contained in 1933 Act registration statements.

Evaluating the other information

The proposed standard would require the auditor to evaluate whether the other information contains (1) a material inconsistency; (2) a material misstatement of fact; or (3) both by performing certain procedures. In addition to reading the other information, the auditor would be required, based on relevant audit evidence obtained and conclusions reached during the audit, to evaluate the:

  • Consistency of amounts in the other information, and the manner of their presentation, that are intended to be the same as, or to provide greater detail about, the amounts in the financial statements, with the amounts in the financial statements and relevant audit evidence
  • Consistency of any qualitative statement in the other information, and the manner of its presentation, that is intended to represent or provide greater detail about information in the financial statements, with the financial statements and relevant audit evidence
  • Other information not directly related to the financial statements as compared to relevant audit evidence obtained and conclusions reached during the audit
  • Amounts in the other information that are calculated using amounts in (1) the other information; (2) the financial statements; or (3) relevant audit evidence, by recalculating the amounts for mathematical accuracy

Reporting responsibilities

The proposed standard would require the auditor to include, among other matters, in a separate section of the auditor's report titled "The Auditor's Responsibilities Regarding Other Information," the following:

  • A statement that the auditor evaluated whether the other information contains a material inconsistency with the financial statements, a material misstatement of fact, or both
  • A statement that the auditor's evaluation of the other information was based on relevant audit evidence obtained and conclusions reached during the audit
  • A statement that the auditor did not audit the other information and does not express an opinion on the other information
  • A statement that, based on the evaluation, the auditor (1) has not identified a material inconsistency or a material misstatement of fact in the other information, or (2) has identified a material inconsistency, a material misstatement of fact, or both in the other information that has not been appropriately revised and a description of the material inconsistency, the material misstatement of fact, or both

The statement in item (1) of this bullet point would also be appropriate in situations in which the auditor has identified a material inconsistency, a material misstatement of fact, or both that management has revised appropriately prior to the issuance of the auditor's report.

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.

Questions?

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
Partner
Phone: 1-973-236-4885
Email: marc.a.panucci@us.pwc.com

James D. Anderson
Partner
Phone: 1-973-236-5738
Email: james.d.anderson@us.pwc.com

Julie Anne Dilley
Director
Phone: 1-646-471-3205
Email: julie.anne.dilley@us.pwc.com