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PCAOB Sets Open Meeting to Explore New Audit Report

Tammy Whitehouse | February 28, 2014

Audit regulators have scheduled a two-day session in early April to hear more feedback on a pending proposal to update the standard audit report, although too soon to air the results of a field test being conducted by the audit profession.

The Public Company Accounting Oversight Board says it will assemble a panel of investors and investor advocates, senior executives and audit committee chairs of major corporations, audit firm representatives, academics, and others with an interest in the proposal. Panelists will be allowed to present their views, and PCAOB members will have the opportunity to question panelists on their views. The panelists and the topics they will address will be announced closer to the April 2-3 public meetings, which will be held in Washington.

The PCAOB's proposal, issued in August 2013, would overhaul the current boilerplate audit report to require auditors to give investors a view into the difficult issues and close calls auditors investigated in each individual audit. Auditors would be required to explain the “critical audit matters” that proved most problematic in arriving at an audit conclusion, whether because the judgments were difficult, the evidence was difficult to gather, or other reasons. The proposal also includes an additional standard that would raise the bar on the auditor's duty to check other information in an annual report beyond the financials statements to look for consistencies.

The PCAOB has already received nearly 240 written comments on the proposal, many of them taking exception with the expectation that auditors would be required to take on a more analytical role. "We received many thoughtful, reasoned comments on the Board's proposal and this public meeting is intended to further explore the issues," said PCAOB Chairman James Doty in a statement.

Most comments from the corporate community and from auditors and other audit experts said it's management's job, not auditors', to give narrative descriptions about what's contained in a company's financial statements. Investor advocates, although heavily outnumbered by the critics to the proposal, said they would find value in hearing directly from the audit firm what auditors found and what difficult issues they encountered in arriving at an audit conclusion. They emphasize the standards would not require auditors to do any additional testing or investigative work beyond what is already required, but only to provide investors with more information about the work they do and the issues they encounter in the process.

The Center for Audit Quality is coordinating with several audit firms to conduct field tests applying the proposed standard to historical financial statements to determine how it would work in practice. The CAQ says its results are expected in May, after the PCAOB has scheduled its April session. The CAQ has asked the PCAOB to allow time at its Standing Advisory Group meetings scheduled for late June to review the results, or consider a different venue to enable to results to be shared.