In the past couple of years, the Public Company Accounting Oversight Board, PCAOB, has proposed several changes to auditing practices. On August 13, 2013, PCAOB issued Release 2013-005 which proposed two new auditing standards regarding to auditor’s reporting model and responsibilities (Zietsman, Burns, Pruitt, & Simer, 2013). Under Release 2013-005, the proposed auditing standard will keep the pass/fail model, but implements three significant changes to the auditor’s report (PCAOB’s Proposed Changes to the Auditor’s Reporting Model and Responsibilities for Other Information, 2013).
The first significant change would be adding a new section to the report where critical audit matters, as determined by the auditor, would be communicated (Zietsman, Burns, Pruitt, & Simer, 2013). Auditors would be required to address topics that were discussed during the audit that either required complex auditor judgments, posed a difficulty in obtaining sufficient audit evidence, or posed difficulty in forming an opinion on the financial statements (Proposals to Enhance the Auditor’s Report, 2013). These critical audit matters relate to the current period, however, there is an exception. Auditors must consider communicating critical audit matters relating to the prior periods when the prior period’s financial statements are made public for the first time or previously issued auditor’s report could no longer could be relied upon (Proposals to Enhance the Auditor’s Report, 2013).
The next significant change would be enhancing the language within the audit report to include statements about the auditor’s responsibility for fraud and notes to the financial statements (PCAOB’s Proposed Changes to the Auditor’s Reporting Model and Responsibilities for Other Information, 2013). With this change, the auditors will have to include the phrase “whether due to error or fraud” when describing the auditor’s responsibility under PCAOB standards to obtain reasonable assurance about whether the financial statements are free of material misstatements (PCAOB Proposes Two Auditing Standards to Enhance Auditor’s Report, 2013). Also, the phrase “and the related notes” would be added into the introductory paragraph in order to clarify that the financial statements include the related notes (PCAOB Proposes Two Auditing Standards to Enhance Auditor’s Report, 2013).
The last significant change is that a new element would be added to communicate more information about the auditor independence, auditor tenure, and the auditor’s responsibility for the evaluation of other information outside the financial statements (Zietsman, Burns, Pruitt, & Simer, 2013). Under this change, auditors will have to describe the scope of “other information” and procedures that are required to be performed (PCAOB’s Proposed Changes to the Auditor’s Reporting Model and Responsibilities for Other Information, 2013). This change also requires auditors to evaluate the “other information” for inconsistency regarding to the amount, information, or the manner of their presentation in the financial statements (Proposals to Enhance the Auditor’s Report, 2013). If so, the auditor is required to respond appropriately (Proposals to Enhance the Auditor’s Report, 2013). As a result, this will add additional audit steps for auditors to perform when evaluating other information based on relevant audit evidence obtained and conclusions reached during the audit (Proposals to Enhance the Auditor’s Report, 2013). Also, the last change to the auditor’s report will require auditors to include an information regarding when the firm began serving consecutively as the auditor (Proposals to Enhance the Auditor’s Report, 2013).
References
PCAOB Proposes Two Auditing Standards to Enhance Auditor’s Report. (2013, August). Retrieved from KPMG: http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Newsletters/Defining-Issues/Documents/Defining-Issues-O-1308-40.pdf
PCAOB’s Proposed Changes to the Auditor’s Reporting Model and Responsibilities for Other Information. (2013, September 13). Retrieved from Wall Street Journal : http://deloitte.wsj.com/riskandcompliance/2013/09/13/pcaobs-proposed-changes-to-the-auditors-reporting-model-and-responsibilities-for-other-information/
Proposals to Enhance the Auditor’s Report. (2013, October). Retrieved from AICPA: http://www.aicpa.org/interestareas/frc/auditattest/downloadabledocuments/enhanced_reporting/frc_asb_proposals_enhance_auditor_report.pdf
Zietsman, M., Burns, J., Pruitt, A., & Simer, B. (2013, August 13). PCAOB Proposes a New Auditing Standard to Enhance the Auditor’s Reporting Model. Retrieved from Public Company Accounting Oversight Board: http://pcaobus.org/News/Releases/Pages/08132013_OpenMeeting.aspx
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