Updates and Comparisons Regarding Changes to the Audit Reporting Model in the United States, United Kingdom, and European Union

• Published date: 01 July 2017
• DOI: http://doi.org/10.1002/jcaf.22278
• Date: 01 July 2017

© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22278

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Updates and Comparisons

Regarding Changes to the Audit

Reporting Model in the United States,

United Kingdom, and European Union

Bradley P. Lawson, Vivian O’Hara, and Angela Wheeler Spencer

INTRODUCTION

The external

audit function in

the United States

is responsible for

evaluating manage-

ment’s assertions and

providing assurance

to stakeholders that

these assertions com-

ply with established

criteria, most often

U.S.-based generally

accepted accounting

principles. The com-

munication between

auditors and stake-

holders regarding the

results of this process

has traditionally been

limited to a one-page

report: the auditor’s

report. Except for the

addition of internal

control opinions as

mandated by the Sar-

banes-Oxley Act of

2002, the format of

the auditor’s report

has changed little

since it was adopted

in the 1940s, with

the auditor issuing

either an unqualified,

qualified, or adverse

opinion concerning

the financial state-

ments prepared by

management. These

opinions are intended

to provide additional

evidence to inves-

tors so that they

can form their own

opinion concerning

the accuracy and fair

representation of the

financial statements.

Many argue,

however, that these

reports follow a

“pass/fail” model

that provides stake-

holders with little to

no new information

In May 2016, the PCAOB proposed some of the

most significant changes to the audit report since

the report was adopted in the 1940s. Among

other things, the changes would require auditors

to disclose within the audit report CAMs, which

are matters that are communicated to the audit

committee and that involved especially challeng-

ing, subjective, or complex auditor judgement.

Although the PCAOB’s latest proposal is not final,

the changes are similar to standards already

adopted by the IAASB. Additionally, PCAOB Chair-

man James R. Doty indicated that he thought the

latest proposal was “the right approach” and that

final rules should be adopted “soon”. This article

provides a timeline of the PCAOB’s proposed

changes, as well as the changes implemented by

the UK and IAASB, discusses changes contained

within the PCAOB’s latest proposal, and compares

those changes to the IAASB’s standards. We also

discuss recent research regarding this topic. Last,

we summarize comments on the PCOAB’s latest

proposal and outline steps that management and

auditors need to take to prepare themselves for

when the final standards take effect.

© 2017 Wiley Periodicals, Inc.

Refereed (Double-Blind

Peer Reviewed)