Aug 19, 2013

The New Auditor’s Report – A Feast for Attorneys?

By Allison M. Henry, CPA, CGMA, PICPA Vice President - Professional & Technical Standards

On Aug. 13, 2013, the PCAOB proposed radical changes that would require you to communicate audit issues that you, as an auditor, believe to be critical. The PCAOB defines critical audit matters as those that…

  • Involve the most difficult, subjective, or complex auditor judgments
  • Pose the most difficulty to the auditor in obtaining sufficient appropriate evidence
  • Pose the most difficulty to the auditor in forming an opinion on the financial statements

Is this a roadmap for a lawsuit? Is the PCAOB essentially forcing auditors to engage legal counsel or hire a risk officer just to review audit opinions? Does this mean auditors will now go overboard and put all obvious risks that can be discerned from the face of the financial statements in the opinion?

In addition to the “critical matters,” the auditor would be required to communicate specific items related to auditor independence, tenure, and responsibilities for, and results of, the auditor’s evaluation of other information outside the financial statements. The proposed report also enhances language related to the auditor’s responsibilities for fraud and the notes to the financial statements.

Will this trickle down to non-PCAOB audits as well? What if financial statement users begin to perceive the PCAOB opinion as a higher quality opinion? The International Audit and Assurance Standards Board also issued a proposal that would make fundamental changes to the auditor’s reports. Yes, this has the potential to ultimately affect all standard audit opinions. It is critical that the PCAOB hear from all CPAs while the proposal is out for exposure. PICPA’s A&A committee will be drafting a response. Let me know your opinion on the proposal by Sept. 20, and the A&A Committee will consider it for its response (ahenry@picpa.org).

Leave a comment

Follow @PaCPAs on Twitter
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.