The Public Company Accounting Oversight Board expects to meet in December to vote on a final standard that would require auditors to dramatically expand the current audit report to include discussion of critical audit matters. While retaining and elevating the auditor’s current pass-fail determination on whether a company’s financial statements are fairly presented, the expanded audit report also will include new language explaining the auditor’s responsibilities, independence, and tenure as the company’s external auditor.

The PCAOB began working on the overhaul of the current boilerplate audit report with a concept release in 2011 that explored the possibility of requiring auditors to include a kind of “auditor discussion and analysis” in each audit report. After much outcry, the PCAOB tailored and narrowed that idea to propose in 2013 requiring auditors to explain “critical audit matters” that arose in the course of an audit.

The PCAOB further refined the CAM requirement in a second proposal in May 2016. That narrows CAMS to matters that arose during the audit that were especially challenging, subjective, or required complex auditor judgement and that were communicated or required to be communicated to audit committees. CAMs also are limited by a materiality component so that auditors would only address matters related to accounts or disclosures that are regarded as material to financial statements.

In an update to the PCAOB’s Standing Advisory Group, Chief Auditor Marty Baumann said the staff has analyzed the 88 comments the board received on the May 2016 proposal and is drafting a final standard for the board’s action. The PCAOB expects the carefully defined parameters around critical audit matters in the new standard to focus auditors on the most important matters that the auditor addressed.

“We think these factors should result in auditors narrowing CAMS to those matters that kept the auditor awake at night,” said Baumann. The board expects the new audit report to result in a significant improvement in the current pass-fail audit report to give investors and other users of financial statements greater insight into the information in financial statements, he said.

The intended effective date for the new standard, if approved by the PCAOB as expected in December, is not yet clear. The Securities and Exchange Commission must review and approve PCAOB rules before they can become effective, and the SEC itself is undergoing significant transformation with the year-end departure of SEC Chair Mary Jo White. The new administration is expected to name not only White’s successor, but also two new members to fill current vacancies on the five-member commission.