PCAOB's New Auditor Report Standard for US Public Companies: Increasing Transparency or Chilling Productive Discussion?

June 08, 2017

The Public Company Accounting Oversight Board (PCAOB) adopted a new auditor reporting standard on June 1, 2017. If approved by the U.S. Securities and Exchange Commission (SEC), the new standard would impose additional disclosure requirements in auditor's reports, including communication of "critical audit matters" (CAMs), and should merit particular attention from audit committee members, chief financial officers, chief accounting officers, and general counsels.

The new standard is aimed at providing investors with information traditionally communicated only to the audit committee. Although designed to make audit reports more informative and relevant to investors and other financial statement users, several commenters have noted that the new standard could impair internal discussions in the interest of shielding company matters from potentially misleading public disclosure, or result in additional liabilities or costs.

Highlights 

  • Auditor's reports required to communicate the existence of "critical audit matters" (CAMs) identified during the course of the audit
  • If approved by the SEC, CAM disclosure required starting with fiscal years ending on or after June 30, 2019 for audits of large accelerated filers and for fiscal years ending on or after December 15, 2020 for audits of all other companies
  • CAM disclosure not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans
  • Given that the proposed CAM disclosure is "principles-based" and subject to varying interpretation, it remains to be seen how auditors will present the disclosure for particular companies
  • Some commenters wary the standard may result in chilling communications between audit committees and auditors, increase liability and costs and create redundant or boilerplate disclosure
  • Additional disclosures related to auditors' tenure and independence and clarifying the scope of auditors' responsibility for material misstatements required starting with fiscal years ending on or after December 15, 2017

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