United States PCAOB explores audit report reform

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23 Jun 2011

The United States Public Company Accounting Oversight Board (PCAOB) has issued a 'concept release' discussing alternatives for changing the auditor's reporting model.

The concept release presents several alternatives for changing the auditor's reporting model, 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. The alternatives include:

  • An auditor's discussion and analysis ('AD&A') – a supplemental narrative report to the auditor's report providing the auditor with the ability to discuss views regarding significant matters, such as audit risks identified in the audit, audit procedures and results, independence, and a discussion of the auditor's views regarding the company's financial statements (e.g. management's judgements and estimates, accounting policies and practices, and difficult or contentious issues)
  • Required and expanded use of emphasis paragraphs – require inclusion of an expanded emphasis paragraph in all audit reports that would highlight the most significant matters in the financial statements and to identify where these matters are disclosed in the financial statements. Emphasis paragraphs could be required in areas of critical importance to the financial statements, including significant management judgements and estimates, areas with significant measurement uncertainty and other areas that the auditor determines are important for a better understanding of the financial statement presentation
  • Auditor assurance on other information outside the financial statements – require auditors to provide assurance on information outside the financial statements, such as management's discussion and analysis (MD&A) or other information (for example, non-GAAP information or earnings releases)
  • Clarification of language in the standard auditor's report – clarifying language about what an audit represents and the related auditor responsibilities, in areas such as reasonable assurance, auditor's responsibility for matters such as fraud, financial statement disclosures and information outside of the financial statements, management's responsibility for the preparation of the financial statements, and auditor independence.

The concept release notes the above alternatives are not seen as mutually exclusive, rather a revised auditor's report could include one or a combination of the alternatives, elements within the alternatives, or alternatives not currently presented.

Comments on the concept release close on 30 September 2011. Click for PCAOB press release (link to the PCAOB website).

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