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PCAOB proposes changes to the auditor’s reporting model

  • PCAOB (US Public Company Accounting Oversight Board) Image

Aug 13, 2013

The PCAOB has issued two proposed auditing standards, "The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion," and "The Auditor's Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor's Report." The proposed changes are intended to significantly enhance the auditor’s reporting model, retaining the current “pass/fail” approach but increasing the amount of other information included in auditors’ reports.

One of the most significant proposed changes is a new required section in the auditor’s report describing “Critical Audit Matters.” In this new section, the auditor would communicate the critical audit matters, describe the considerations that led to each matter being considered a critical audit matter, and (if applicable) refer to the related financial statement accounts and disclosures in the financial statements. In its fact sheet about the proposals, the PCAOB noted that critical audit matters are those that:

  • Involved the most difficult, subjective, and complex judgments or conclusions related to the audit.
  • Were the most difficult with respect to obtaining sufficient appropriate audit evidence.
  • Presented the most difficulty to the auditor in terms of forming an opinion on the financial statements. 

The proposed changes also call for the addition of new elements to the auditor’s report on auditor independence, auditor tenure, and the auditor’s responsibilities for, and the results of, the auditor’s evaluation of other information outside the financial statements. The changes would also modify existing language related to the auditor’s responsibilities for fraud and the notes to the financial statements.

Comments on the proposals are due to the PCAOB by December 11, 2013.  

Click to view the proposed auditing standards on the PCAOB website, and see  Deloitte’s Heads Up newsletter for additional analysis of the PCAOB’s proposals.

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