The SEC has issued for public comment a Notice of Filing of Proposed Rules on The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and Departures from Unqualified Opinions and Other Reporting Circumstances, and Related Amendments to Auditing Standards. This document seeks feedback from constituents on the PCAOB’s previously adopted new auditing standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
The new PCAOB standard is designed to enhance the relevance and usefulness of the auditor’s report by providing additional and important information to investors. The new rules are subject to approval by the SEC.
The new standard and related amendments require auditors to include in the auditor’s report a discussion of the critical audit matters (CAMs). “Critical audit matters” are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment.
The new standard requires the auditor’s report to:
- Discuss CAMS;
- Disclose the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company’s auditor; and
- Include the phrase, “whether due to error or fraud,” in the description of the auditor’s responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.
The standard also retains the pass/fail model of the existing auditor’s report.
The final standard applies to audits conducted under PCAOB standards. Communication of CAMs is not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans.
The new requirements are to be phased in, to provide investors and other financial statement users with new information as soon as reasonably practicable, while allowing accounting firms, companies, and audit committees time to prepare for implementation of the CAM reporting requirements.
Comments are due 21 days from publication of the notice in the Federal Register.
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