Auditing

December 1, 2012

  Change apparently is coming to the auditor’s report, but views vary over the appropriate content and structure for reports, and particularly over the issue of “auditor commentary.”

The question of appropriate content and structure for the auditor’s report was the subject of an International Auditing and Assurance Standards Board (IAASB) round-table meeting in New York in September. It was the first of three such meetings as the IAASB sought feedback from investors, auditors, and other interested parties on an Invitation to Comment (ITC) it issued in June on the auditor’s report.

The ITC proposes that additional information in the auditor’s report should be provided as “auditor commentary” to highlight matters that the auditor believes are likely to be most important to users’ understanding of the audited financial statements or the audit. Auditor commentary would be required for public-interest entities, which at a minimum include listed entities, and could be provided at the auditor’s discretion for other entities.

Proposed changes in the ITC include: 

  • A conclusion by the auditor on the appropriateness of management’s use of the going-concern assumption in preparing the financial statements, and an explicit statement about whether material uncertainties related to going concern have been identified.
  • A statement by the auditor identifying whether any material inconsistencies between the audited financial statements and other information have been found based on the auditor’s reading of other information. Specific identification of the information considered by the auditor also would be included.
  • Prominent placement of the auditor’s opinion and other entity-specific information in the auditor’s report.


The ITC also asks whether the auditor’s reports should describe audit procedures, involvement of other auditors, and the auditor’s responsibilities, as well as whether disclosure of the engagement partner’s name should be required. Comments on the ITC were due Oct. 8; the ITC is available at tinyurl.com/cj9lnuv.

The AICPA Auditing Standards Board (ASB) recommended in a comment letter that auditor commentary should be required only in auditor’s reports for financial statements of listed entities. The ASB wrote that auditor commentary would have limited practical relevance for many users of audited financial statements of nonissuers in the United States and therefore should not be required for nonissuers because of cost/impediment considerations.


  Corporate board members charged with oversight of U.S. public companies are opposed to mandatory rotation of external auditors by more than 2-to-1, according to a recent survey.

Mandatory audit firm rotation is a continuing subject of debate in Europe and the United States, where regulators are exploring such a requirement.

Sixty-eight percent of the U.S. public company board members participating in a BDO survey (available at tinyurl.com/9qtdwpv) said they do not favor a requirement for mandatory rotation of external auditors for U.S. public companies.

Among those who opposed audit firm rotation, 78% said they opposed the concept of mandatory tendering, or putting up for bid, of the external audit relationship.

The wide-ranging survey also showed that corporate directors:

  • Support voluntary adoption of IFRS for financial reporting by U.S. public companies.
  • Identify corruption and bribery as the greatest fraud risk for their companies.
  • Say the CEO is the person at their company who is most helpful to the board in assessing and managing risk.


The PCAOB continues to explore the issue of mandatory audit firm rotation for U.S. public companies. The European Parliament has been debating a European Commission proposal that would limit to six years the period that an outside auditing firm would be allowed to perform audits for a public company.

In a comment letter to the PCAOB, the AICPA said mandatory firm rotation carries significant costs and possible unintended consequences that have the potential to hinder audit quality rather than the intended goal of enhancing audit quality. 

Sixty-three percent of respondents said U.S. public companies should be allowed to use IFRS in their public reporting. The SEC staff in July issued a report that examined the issue of IFRS adoption for U.S. public companies, but made no recommendation. The matter is in the hands of the SEC commissioners, with no timetable set.

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