The PCAOB will hold an open meeting on June 1 to consider adopting a new standard that would require auditors to provide additional information in the auditor’s report.
In its auditor’s reporting model project, the PCAOB has been working for years to find a mechanism for auditors to provide more information to investors and financial statement users. The board issued a proposal in August 2013 and a reproposal in May 2016 with the goal of updating the form and content of the auditor’s report.
The PCAOB has proposed that the auditor’s report would include a description of “critical audit matters,” which would provide financial statement users with information about the most challenging, subjective, or complex aspects of the audit.
In the reproposal, the board revised the draft of the standard to define a “critical audit matter” as any matter arising from the audit that meets all the following criteria:
- Was communicated or required to be communicated to the audit committee.
- Relates to accounts or disclosures that are material to the financial statements.
- Involved especially challenging, subjective, or complex auditor judgment.
The Center for Audit Quality (CAQ), which is affiliated with the AICPA, supported the approach of limiting critical audit matters to items that were discussed with the audit committee.
“We believe that narrowing the sources of potential [critical audit matters] in this way will also enhance the ability for auditors to communicate only the most important matters to users of the financial statements,” CAQ Executive Director Cindy Fornelli said in an Aug. 15 comment letter to the PCAOB.
Fornelli wrote that including too many matters in the auditor’s report would minimize the intended emphasis on the matters of most significance.
The PCAOB also will consider proposing amendments to standards designed to strengthen and enhance requirements for auditing accounting estimates, including fair value measurements, and for using the work of specialists in an audit.
The meeting will be streamed live at the PCAOB’s website at 2:30 p.m. ET on June 1.
—Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.