The Center for Audit Quality (CAQ) is urging the PCAOB to streamline a proposed process for auditors to provide investors more information on the audit.
The PCAOB in August proposed sweeping changes to the auditor’s reporting model and requested comments that are due today.
The proposal would require auditors to identify and report on “critical audit matters” that arise during the audit. In addition, the proposal would require auditors to evaluate other information that is included in an annual report but is outside the audited financial statements.
The CAQ, which is affiliated with the AICPA, expressed support in a comment letter that was sent today for the PCAOB’s efforts to update the auditor’s reporting model and supply financial statement users with more information.
But the CAQ highlighted suggestions that it said would improve the proposal. The CAQ suggested:
- Streamlining the auditor’s process for determining critical audit matters. The letter said this can be achieved in part through leveraging the auditor’s communications with the audit committee that already are required. The most important matters in those communications would be the focus of the critical audit matters.
- Revising the auditor’s report to describe the auditor’s responsibility for other information, including the need to report unresolved material inconsistencies or material misstatements of fact. The CAQ is concerned that the proposed standard may create the appearance of a level of assurance that is not supported by the limited audit procedures the proposal describes with respect to other information.
- That the auditor’s report should not include a disclosure of the audit firm’s tenure with the client, and that there are other, more appropriate places this information could be provided.
The CAQ said it also has collaborated with members of the auditing profession to field-test the proposal. Although testing and analyzing results will take several months, the results are expected to be ready in time for a round-table meeting the PCAOB plans to hold on the issue in the spring.
“Additionally, as the PCAOB contemplates this important project, we encourage the board to continue to consider international efforts and to work to harmonize standards and where possible provide clarity and consistency,” CAQ Executive Director Cindy Fornelli said in a statement.
Fornelli also commended the PCAOB’s thoughtful approach to addressing a complex issue.
Audit reports in the United States have not been revised significantly since the 1940s, according to the PCAOB, which has said investors have expressed interest in a report that gives information beyond a pass/fail opinion from the auditor on whether the financial statements are presented fairly.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.