In August, the Public Company Accounting Oversight Board proposed for public comment a new auditing standard and related amendments to enhance the auditor’s reporting model. The proposed standard would retain the pass/fail model in the existing auditor’s report, but would provide additional information to investors and other financial statement users about the audit and the auditor.
“These proposed changes will make the auditor’s report more relevant to investors,” said James R. Doty, PCAOB Chairman. “More robust audit reports that demonstrate the strength and value of the audit also should lead to better public awareness of, and appreciation for, auditors’ skill and insight.”
The proposed auditor reporting standard would require:
- the communication of critical audit matters as determined by the auditor;
- the addition of new elements to the auditor’s report related to auditor independence, auditor tenure, and the auditor’s responsibilities for, and the results of, the auditor’s evaluation of other information outside the financial statements; and,
- enhancements to existing language in the auditor’s report related to the auditor’s responsibilities for fraud and notes to the financial statements.
The proposed other information standard describes the scope of “other information” and procedures the auditor is required to perform, including procedures when the auditor identifies a material inconsistency between the other information and the audited financial statements, a material misstatement of fact, or both.
The scope of “other information” in an annual report filed on Form 10-K would include, among other items, selected financial data and management’s discussion and analysis.
“The goal of these proposed standards and amendments is to significantly improve the current auditor reporting model by requiring the auditor to communicate specific information about each audit based on audit procedures performed,” said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards. “Communicating critical audit matters in the auditor’s report will make the report more informative, thereby, increasing its relevance and usefulness to investors and other financial statement users,” he said.
Comments on the proposed standards and related amendments are due by Dec. 11, 2013. Additionally, the Board is considering holding a public roundtable in 2014 to discuss the proposed standards and comments received. A fact sheet on the proposal is also available.
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