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PCAOB Ponders Audit Report 2.0

Tammy Whitehouse | August 9, 2013

Following an international proposal to revise the standard audit report, the Public Company Accounting Oversight Board will meet next week to publish a proposal of own.

The PCAOB has scheduled a meeting for Tuesday, Aug. 13, to propose a new auditing standard and related amendments that would alter the current audit report, which has not changed in any meaningful way since the 1940s. The proposal is expected to require auditors to increase their responsibilities and their reporting in connection with other information in an annual report that contains financial statements.

In a brief statement scheduling the public meeting, the PCAOB says the proposal is intended to make the audit report more useful to those who rely on it. Investors have told the board they are looking for more insightful information from auditors about what they do and what they learn during the course of a routine audit. The board offered no further hints as to what the proposal will contain.

The PCAOB issued a concept release in June 2011 calling for ideas on how to alter the audit report, and held a public roundtable and consulted with its Standing Advisory Group to solicit further input. The board sought views on whether to require auditors to produce an “auditor's discussion and analysis” to be included with each audit report, or instead to focus on increased use of “emphasis paragraphs” where auditors would be required to expand their discussion of issues they found to be important through the audit. The board also asked for views on whether to require auditors to provide assurance on information that is contained outside the audited financial statements, or more simply to focus on increased clarification about what goes into the standard audit report.

PCAOB Chairman James Doty said when the board issued its concept release that the goal of the project would be to change the culture of auditing to one where auditors work for investors rather than the public companies that pay the audit bill. “It's about how audits can provide investors more insightful assessments of management stewardship,” he said then.

The International Auditing and Assurance Standards Board, which sets professional standards that are followed in numerous countries abroad, recently issued a proposal that would require auditors to produce a new section in the audit report to explain what they found to be the most significant issues that arose during the audit. That would include areas that auditors identified as significant risks or that involved significant audit judgment, areas where the auditor encountered significant difficulty during the audit, and areas where the auditor had to alter the original audit plan as a result of discoveries during the audit, such as identifying a significant deficiency in internal control.

Under the international plan, auditors also would be required to produce a new section to discuss their views on an entity's ability to continue as a going concern, and to include the name of the engagement partner who oversaw the audit.