By Federica Tedeschi
The USA Securities and Exchange Commission (SEC) has approved a Public Accounting Oversight Board (PCAOB) rule that requires significant enhancements to certain public company audit reports, including the communication of critical audit matters (CAMs) and the disclosure of the auditor’s tenure.
The PCAOB has been working on this project since 2010, with the aim to make the auditor’s report more informative.
The move followed specific requests of transparency from investors and the whole process has seen the PCAOB engaged in three rounds of public solicitation of comment as well as substantial outreach to various stakeholder groups.
SEC chairman Jay Clayton said: “I strongly support the objective of the rule to provide investors with meaningful insights into the audit from the auditor. CAMs are designed to provide investors and other financial statement users with the auditor’s perspective on matters discussed with the audit committee that relate to material accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment.”
Some raised questions about the PCAOB’s rule and the risk of CAMs either causing an increase in litigation that does not benefit investors or conveying meaningful information specific to the audit. Some even suggested that CAMs could chill auditor-audit committee dialogue.
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Clayton added: “I would be disappointed if the new audit reporting standard resulted in frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships."
But Clayton said he was pleased with the PCAOB plan to monitor the results of enforcement, including consideration of unintended consequences.
PCAOB chairman James Doty predicted that while changes would not happen overnight they would occur, as the new rule brought accountability to the profession.