Regulators have issued more guidance to auditors about how they should comply with requirements to add new information to audit reports.

It’s the second round of guidance to auditors as they begin to comply with a new auditing standard, AS 3101, which revises the audit report to include new disclosures. The most significant change to the audit report under the new standard is a requirement for auditors to disclose “critical audit matters” that they identified and addressed during the audit.

The PCAOB first issued guidance to auditors in December 2017, largely pertaining to other areas of the standard that took effect before CAM disclosures. The standard requires auditors to disclose their tenure on each engagement and to include some new language to clarify the auditor’s role concerning fraud. Those aspects of the standard took effect for audits of 2018 financial statements, but the CAM disclosure will be phased in by filer size beginning in 2019 to give audit firms more time to determine how they will comply.

The PCAOB’s first piece of staff guidance, only 8 pages long, covered some of the more straightforward aspects of the standard, providing a sample audit report containing new language. The updated guidance elaborates on those areas while still providing a scant four paragraphs on CAM disclosures.

The updated guidance provides some new insight into how to disclose the auditor’s tenure, for example. Auditors have said this is more challenging than it might seem given merger or acquisition activities, both at audited entities and at audit firms. The tenure guidance addresses uncertainty auditors may have about naming the year in which it became the auditor for a given company’s filing, instructing them to focus on what they can say that will give investors some indication of tenure. 

The guidance also addresses voluntary disclosures auditors might choose to make about certain participants in the audit, including the engagement partner and other firms outside the principal firm that contributed to the audit. While those elements are not required—audit firms, in fact, protested adamantly to those items being included in audit reports—the standard does permit audit firms to address them if they wish.

When the PCAOB was developing the new audit report, it ultimately abandoned a requirement for the engagement partner and other audit participants to be named in the audit report, opting instead for a separate Form AP filing, which is now required on all engagements. A PCAOB spokesman said the staff included the guidance on voluntary disclosure in the audit report “to be comprehensive about all types of disclosures in the audit report—whether required, like tenure and CAMs, or voluntary, like disclosures about certain audit participants.”

The new guidance also gives auditors some direction on audit reporting regarding internal control over financial reporting, the use of explanatory or emphasis paragraphs, and other reporting situations that might arise.