The most significant changes to the auditor’s report in more than 70 years will create new ways for auditors to communicate and provide new information to investors.
Audit committees, meanwhile, need to understand the PCAOB’s new requirements as they perform their oversight of audit firms. A new Center for Audit Quality (CAQ) tool, The Auditor’s Report: Considerations for Audit Committees, discusses the implications of PCAOB Auditing Standard 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. The CAQ is affiliated with the AICPA.
The first phase of implementation takes effect for audits of companies with fiscal years ending on or after Dec. 15, 2017, and includes disclosing auditor tenure as well as other changes to the form and content of the auditor’s report.
The communication of critical audit matters — the most consequential new task associated with the new reporting model — will occur in the second phase of implementation. The second phase will take effect with critical audit matters included in the auditor’s report for large, accelerated filers for fiscal years ending on or after June 30, 2019, and for all other companies subject to the requirements for fiscal years ending on or after Dec. 15, 2020.
“While some of the most significant changes to the auditor’s report do not go into effect until 2019 for large, accelerated filers, audit committees should begin discussions with auditors and management to gain an understanding of the new requirements, which are the first significant changes to the auditor’s report in decades,” Cindy Fornelli, executive director of the CAQ, said in a news release.
The tool includes the following considerations for audit committees:
- How auditor tenure is determined and whether complexities in the auditor’s relationship with the company need to be communicated.
- The sufficiency of proxy disclosures around audit committee oversight of auditors.
- The changes in the format of the report and when they will occur.
- The audit firm’s plans for developing a firm methodology and guidance for identifying and communicating critical audit matters, and whether the audit firm plans to field-test its methodology before the effective date.
—Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.