The Public Company Accounting Oversight Board (PCAOB) chairman James Doty has described the PCAOB’s proposed standards on the auditor’s reporting model as a "watershed moment for auditing in the US" at a public meeting this week.
The key change in the proposed standard is the inclusion of "critical audit matters" (CAM) in the report, these matters being issues addressed in the audit which involved the most difficult, subjective or complex auditor judgements.
The proposals also require new disclosure elements in the report related to auditor independence and auditor tenure, and also require the auditor to evaluate certain extra information beyond financial statements.
Doty said the standards would make the report more relevant to stakeholders, while keeping the auditor within his or her area of expertise, the audit.
"No one wants to return to the days before the pass-fail model was instituted, when auditors’ free-writing could obscure a disclaimer of assurance on misleading financial statements," he added.
While a number of speakers expressed broad support for CAM, they also expressed specific concerns.
EY Americas vice-chair Kevin Reilly said his firm was broadly supportive of CAM disclosure, but was concerned with how it had been applied in the proposal.
Reilly said these worries could be addressed, but this would require "significant revision to, and clarification of, the manner in which the CAM disclosure concept is expected to be applied in practice."
PCAOB board member Aulana Peters also expressed reservations. Peters said the PCAOB’s idea that auditors publicly report problems encountered during the audit rather than the process used to reach their opinion on a financial statements, may lead the auditor to focus on issues that are not necessarily material.
Other issues raised by speakers included whether or not the CAMs may end up, in some cases, presenting information already given to stakeholders through other channels.