PCAOB Proposes Significant Changes to Auditor's Reporting Model

DOIhttp://doi.org/10.1002/jcaf.22005
Date01 November 2014
Published date01 November 2014
53
© 2014 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22005
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Bradley P. Lawson and William C. Schwartz Jr.
PCAOB Proposes Significant Changes to
Auditor’s Reporting Model
INTRODUCTION
The Public Com-
pany Accounting
Oversight Board
(PCAOB) recently pro-
posed significant and
far-reaching changes
to the audit report for
publicly traded compa-
nies. These proposals, if
adopted, will dramati-
cally impact the finan-
cial reporting and audit
process for companies’
chief executive officers
(CEOs), chief financial officers
(CFOs), audit committees, and
auditors. It appears increas-
ingly likely that at least some of
these changes will be adopted.
Therefore, it is important that
company management is aware
of the proposed changes and
proactively considers how they
would impact their firm. Addi-
tionally, companies should fol-
low the progress of and perhaps
participate in future discussions
of the PCAOB’s proposals.
The current audit report,
which discloses the auditor’s
opinion as to the fair represen-
tation of companies’ financial
statements in conformity with
the applicable financial report-
ing framework, has changed
relatively little since the 1940s.
Subsequent to the passage of
the Sarbanes-Oxley Act of 2002
and the establishment of the
PCAOB, the audit report was
modified by Auditing Standards
No. 1 (AS1) and No. 5 (AS5) to
include references to the auditing
standards promulgated by the
PCAOB and integrate their then
newly required report on the
company’s internal controls over
financial reporting or, if they
chose to issue separate reports,
include a reference to the sepa-
rate report on internal controls.
1,2
However, neither of these stan-
dards changed audi-
tors’ typical “pass/
fail” approach to the
audit report.
In June 2011, the
PCAOB responded
to prior calls for
expanded use of and
improvements to the
audit report by issu-
ing Concept Release
2011-003. Among
other suggestions,
the Concept Release
asked for feedback
regarding the addi-
tion of an auditor-prepared
discussion and analysis section,
expanded use of “emphasis
paragraphs,” and expanding
the scope of auditors’ assur-
ance to cover other information
outside the standard financial
statements. Based on feedback
received, the PCAOB issued for
public comment Release No.
2013-005 (the “Release”) in
August 2013. The Release con-
tained two proposals for changes
to current auditing standards:
The Auditor’s Report on an
Audit of Financial Statements
When the Auditor Expresses
an Unqualified Opinion (the
“proposed auditor reporting
The Public Company Accounting Oversight Board
(PCAOB) recently proposed significant changes
to the audit report. These changes would impact
the financial reporting and auditing process for
companies’ management, audit committees, and
auditors. The proposals require auditors to dis-
close company-specific critical audit matters and
expand their evaluation of other information out-
side the audited financial statements. Could this
change the fundamental nature of the audit pro-
cess and increase audit costs, as some suggest?
© 2014 Wiley Periodicals, Inc.

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