The Public Company Accounting Oversight Board (PCAOB) will consider adopting a new standard next week that would provide additional information in the auditor’s report to investors and other users of financial statements.
An open meeting has been scheduled for 10 a.m. ET on June 1 when the board is expected to take final action on the new auditor reporting standard.
The board also will be considering proposing amendments to standards that would strengthen and enhance requirements for auditing accounting estimates, including fair value measurements, and using the work of specialists in an audit, according to a news release.
The standard would retain the pass/fail model of the existing auditor’s report, which the PCAOB said is “generally acknowledged to be a useful signal as to whether the audited financial statements are presented fairly.”
But the auditor’s report would be expanded to provide a wider range of information, such as the communication of “critical audit matters” and new elements related to auditor independence and auditor tenure.
A critical audit matter is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that:
- Relates to accounts or disclosures that are material to the financial statements.
- Involves especially challenging, subjective, or complex auditor judgment.
In determining whether a matter involved especially challenging, subjective, or complex auditor judgment, the auditor would take into consideration a list of factors, such as the auditor’s assessment of the risks of material misstatement, including significant risks.
Once a critical audit matter has been identified, the auditor would:
- Describe the principal considerations that led to the determination that the matter is a critical audit matter.
- Describe how it was addressed in the audit.
- Refer to the relevant financial statement accounts and disclosures.
If there are no critical audit matters, the auditor would state that in the auditor’s report.
The auditor would document the basis for the determination of whether each critical audit matter – that was communicated or required to be communicated to the audit committee, and relates to accounts or disclosures that are material to the financial statements – involved especially challenging, subjective, or complex auditor judgment.
While the concept of critical audit matters was carried forward from the 2013 proposal, the PCAOB said the reproposed standard narrows the requirements in the following ways:
- Limits the source of potential critical audit matters to matters communicated or required to be communicated to the audit committee.
- Adds a materiality component to the definition of critical audit matter.
- Narrows the definition to only those matters that involved especially challenging, subjective, or complex auditor judgment.
- Revises the related documentation requirement.
The June 1 meeting is open to the public and will take place in the PCAOB’s meeting room at 1666 K Street NW, Washington, DC. It will be streamed live via a link on the PCAOB website.
About Jason Bramwell
Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.