December 4, 2017
The Public Company Accounting Oversight Board has released staff guidance on the new audit reporting standard and is hosting webinars to help auditors with preparing the new reports.
The guidance describes changes to the auditor's report required this year, such as the form of the auditor's report, disclosure of auditor tenure, a statement on auditor independence, and a required explanatory paragraph on internal controls over financial reporting in certain circumstances. The new standard take effect for audits for fiscal years ending on or after Dec. 15, 2017.
In June, the PCAOB adopted the new audit reporting standard, along with some related amendments. The Securities and Exchange Commission approved them in October.
“We are approaching implementation of our changes to the audit report in the same way we approached implementation of our other transparency disclosures,” said PCAOB Chairman James Doty during the AICPA’s Conference on Current SEC and PCAOB Developments in Washington, D.C., on Monday. “We will bring all our tools to the task, starting with outreach and guidance as firms prepare to comply. In a matter of weeks, audit reports will be better organized, provide investors the tenure information they have asked for, and include an express statement about auditor independence beyond just what is implied by the title of the report.”
One of the major changes in the new standard involves a discussion of critical audit matters, also known as CAMs. Auditor communication of CAMs is permissible on a voluntary basis for now but won’t be required until audits of fiscal years ending on or after June 30, 2019 (for audits of large accelerated filers) or Dec. 15, 2020 (for audits of other companies to which the requirements apply).
“With respect to CAMs requirements, the board set staggered effective dates, based on the size of the company under audit,” said Doty. “CAMs are required for audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for audits of other issuers for fiscal years ending on or after December 15, 2020. CAMs will not be required for audits of emerging growth companies, brokers and dealers, employee stock plans, or investment funds. The staggered effective dates will allow us to monitor early implementation. As needed, we will develop additional guidance and report on areas where we find common compliance weaknesses. Successful implementation will also, of course, require firms’ commitment to differentiate their reports and provide meaningful insights.”
The PCAOB intends to monitor the implementation of the standard and might issue additional guidance, as needed.
“This guidance was prepared to help firms as they implement the first phase of changes to the auditor's report,” said PCAOB Chief Auditor and Director of Professional Standards Martin F. Baumann in a statement. “These changes will improve the relevance and usefulness of the auditor’s report by providing additional information to investors.”
The PCAOB plans to host two webinars, on Dec. 12, 2017, and Jan. 10, 2018, on the implementation of the recent audit report changes. In addition, the PCAOB is planning to do a post-implementation review of the new standard, along with others.
“Our economists have already begun to plan and identify data to collect for the post-implementation review of the economic impact of the new audit report and transparency disclosures down the road,” said Doty.