U.S. accounting regulators are proposing a fundamental change to the auditing process that aims to give investors greater insight into corporate financials.
The U.S. Public Company Accounting Oversight Board (PCAOB) proposed a new auditing standard, and other amendments to enhance the auditor reporting model, Tuesday. It says that the proposed standard would retain the pass/fail model in the existing auditor's report, but would provide additional information to investors about the audit and the auditor.
The proposed new standard would require: disclosing what the auditor sees as critical audit matters; adding new elements to auditors' report concerning auditor independence, auditor tenure, and the results of, the auditor's evaluation of other information outside the financial statements; and, there would be enhancements to existing language in the auditor's report related to the auditor's responsibilities for fraud and notes to the financial statements.
The proposed other information standard describes the scope of "other information" and procedures the auditor is required to perform, including procedures when the auditor identifies a material inconsistency between the other information and the audited financial statements, a material misstatement of fact, or both.
"These proposed changes will make the auditor's report more relevant to investors," said James Doty, chairman of the PCAOB. "More robust audit reports that demonstrate the strength and value of the audit also should lead to better public awareness of, and appreciation for, auditors' skill and insight."
"The goal of these proposed standards and amendments is to significantly improve the current auditor reporting model by requiring the auditor to communicate specific information about each audit based on audit procedures performed," said Martin Baumann, PCAOB chief auditor and director of professional standards.
"Communicating critical audit matters in the auditor's report will make the report more informative, thereby, increasing its relevance and usefulness to investors and other financial statement users," he said.
Comments on the proposed standards and related amendments are due by Dec. 11. The PCAOB says that it is considering holding a public roundtable in 2014 to discuss the proposed standards and comments received, too.