Updated guidance highlights key changes in the auditor’s report

Updated staff guidance issued by the PCAOB provides practitioners with information on Auditing Standard 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.

The updates build on previous guidance that was issued on Dec. 28, 2017. Issues addressed in the update include:

• New information in the annotated example of an auditor’s report on voluntary disclosure about certain audit participants in the audit.
• A footnote on determining auditor tenure for employee benefit plans.
• Examples of company filings that could be used to determine auditor tenure.
• Guidance regarding uncertainty about the specific year for auditor tenure.
• Guidance on auditor tenure reporting by predecessor auditors.
• Guidance on reporting when audits of internal control over financial reporting are required by other regulators.
• Guidance on reporting auditor tenure in a separate auditor’s report on internal control over financial reporting.
• Guidance on the location of explanatory paragraphs in the auditor’s report.
• Examples of what might be included in emphasis paragraphs.
• Information on the voluntary disclosure of the engagement partner and other accounting firms participating in the audit.
• Guidance on auditor reporting on supplemental information, interim financial information, and special reports.

All the changes in the new standard, except those related to critical audit matters, took effect for audits of fiscal years ending on or after Dec. 15, 2017.

Auditor communication of critical audit matters will be required for audits of fiscal years ending on or after June 30, 2019, for audits of large accelerated filers or Dec. 15, 2020, for audits of all other companies affected by the requirements.

PCAOB identifies fewer independence issues in broker–dealer audits. Independence issues identified in the PCAOB’s 2017 staff inspections of broker-dealer auditors fell compared with the previous year, according to a report from the board.

But the percentage of firms found to have deficiencies in their audits dropped just slightly, to 91% (68 of 75), from 97% in the previous year.

Inspectors identified auditing issues with the highest frequency in auditing revenue; assessing and responding to risks of material misstatement due to fraud; and auditing supplemental information for the customer protection rule.

The inspections also examined audit firms’ systems of quality control, where audit issues were found in areas such as exercising due professional care and performing engagement quality reviews.

Just four of the 48 audits examined for independence issues were found to have independence violations.