Citing a goal of investor protection, the Public Company Accounting Oversight Board (PCAOB) has issued a concept release to discuss alternatives for changing the auditor's reporting model. The Board also announced that it will convene a public roundtable to discuss the concept release in the third quarter of 2011.
"The concept release we issue today represents a significant step for investor protection in response to the financial crisis, and a first step toward a holistic consideration of reforms designed to foster the relevance, transparency and reliability of the audit process", said James R. Doty, PCAOB chairman in a published statement.
The Board is seeking comment on alternatives and other matters presented in the concept release regarding possible enhancements in the auditor's reporting model. The auditor's report is the primary means by which the auditor communicates to investors and other financial statement users about information regarding the audit of the financial statements.
What does this mean?
PCAOB isn't asking auditors to get out the yellow highlighter or put sticky pointers on the audit report to show what's important, but it is suggesting that auditors start including an emphasis paragraph in the audit report that includes information about "significant management judgments and estimates and areas with significant measurement uncertainty." You don't have to wait for this PCAOB guideline to become a formal requirement - emphasis paragraphs are already allowed in audit reports.
"The auditor is in a unique position to provide relevant and useful information, because of the auditor's extensive knowledge of the company and as an independent third-party,” said Martin F. Baumann, PCAOB chief auditor and director of professional standards. "The concept release explores ways to expand the auditor's communication in the auditor's report about the audit and the company's financial statements."
The concept release presents several alternatives for changing the auditor's reporting model and the PCAOB is seeking specific comment on these or other alternatives that could provide investors with more transparency in the audit process and more insight into the company's financial statements or other information outside the financial statements. These alternatives include:
- An auditor's discussion and analysis;
- Required and expanded use of emphasis paragraphs;
- Auditor assurance on other information outside the financial statements; and,
- Clarification of language in the standard auditor's report.
The current release includes a request for public comment on alternatives for amendments to, or the development of new, auditing standards that would supersede the Board's current standards on the auditors' report. The Board also released a fact sheet that provides a summary of the matters included in the concept release.
Comments on the concept release are due by 5:00 PM EDT on September 30, 2011. Interested persons may submit written comments to:
Office of the Secretary, PCAOB
1666 K Street, N.W.
Washington, D.C. 20006-2803.