The Public Company Accounting Oversight Board (PCAOB) recently issued guidance for the new auditor’s reporting model in Auditing Standard No. 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
The new standard will be effective for audits of fiscal years ending on or after Dec. 15 except for changes that concern critical audit matters. It aims to make the auditor’s report more useful by providing users additional information about the auditor and to make the report easier to read.
A second key change addresses auditor communication of critical audit matters, which is permissible on a voluntary basis but won’t be required until audits of fiscal years ending on or after June 30, 2019 (for large accelerated filers) or Dec. 15, 2020 (for all other companies).
The PCAOB guidance notes that it doesn’t constitute board rules and has not been approved by the board. It supplements the PCAOB’s Release No. 2017-001, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards released June 1.
Here’s a snapshot of some of the changes:
Auditors should refer to AS 3105, Departures from Unqualified Opinions and Other Reporting Circumstances, for reporting requirements concerning departures from unqualified opinions and other reporting circumstances. AS 3105 generally requires the same basic elements and, if applicable, critical audit matters as would be required under AS 3101.
AS 3101.08-09 require that the section on the Opinion on Financial Statements be first with the Basis for Opinion section second.
AS 3101.07 requires that the report be addressed to shareholders and the board of directors, or the board’s equivalent for companies that aren’t corporations.
AS 3101.09.g requires a statement in the Basis for Opinion section indicating that the auditor is a public accounting firm registered with the PCAOB and is required to be independent from the company.
AS 3101.10.b requires the auditor to state in the report the year in which the auditor began serving consecutively as the company auditor. The tenure disclosure should indicate the entire relationship between the company and auditor, including the tenure of predecessor firms. Tenure includes accounting firm or company mergers, acquisitions or ownership changes.
The auditor is required to explain in the report circumstances listed in AS 3101.18.
The auditor may add a paragraph to the report that emphasizes a matter regarding financial statements. These so-called emphasis paragraphs aren’t required but can alert readers to significant transactions with related parties and unusually important subsequent events.
AS 3101.20 allows the auditor to include information about the engagement partner and/or other firms participating in the audit that are required to be reported.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.