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PCAOB Adopts New Standard to Enhance the Relevance and Usefulness of the Auditor's Report with Additional Information for Investors

  • PCAOB (US Public Company Accounting Oversight Board) (dark gray) Image

Jun 01, 2017

On June 1, 2017, the Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard to enhance the relevance and usefulness of the auditor's report by providing additional and important information to investors.

The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs) which are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment.

PCAOB member Steven B. Harris said that it “is a direct response to calls from investors for the Board to expand the auditor’s report to include information about the difficult parts of the audit, and information that the auditor gained from the audit that he or she would like to know as an investor – basically what ‘kept the auditor awake at night.’”

Under the new standard, the auditor's report will disclose, among other things, the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company's auditor. It also will include the phrase, "whether due to error or fraud," in describing 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.

Board member Lewis H. Ferguson expressed a concern among PCAOB members that CAM statements “will quickly deteriorate into boilerplate disclosures that are repeated year after year and shortly provide no additional useful information to financial statement users.”

He predicted that there would be “an inevitable attempt, particularly on the part of large audit firms with many public company clients, to achieve some, and perhaps a very high degree of, uniformity in the disclosure of the CAMs.”

In framing the standard, though, the Board has tried to curb that risk by requiring that CAMs “be tied to the factual situation of the particular audit engagement in which they arise,” Ferguson said.

Effective dates:

  • New auditor's report format, tenure, and other information: audits for fiscal years ending on or after December 15, 2017
  • Communication of CAMs for audits of large accelerated filers: audits for fiscal years ending on or after June 30, 2019
  • Communication of CAMs for audits of all other companies: audits for fiscal years ending on or after December 15, 2020

The new rules are subject to approval by the Securities and Exchange Commission.

Review the press release and fact sheet on the PCAOB's website.

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