For the first time in 70 years, changes are being implemented to the existing report card from the auditor. The new standard, AS 3101, provides detailed guidance on “The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.”

The standard is being implemented in two phases. In the first phase, changes are intended to provide information about auditor tenure and clarify the auditor’s responsibilities. In the second phase, the auditor is required to provide new information about the audit. The auditor’s report will continue to be a pass/fail model. Similar rules are already in effect in the U.K. and Europe.

New Standard

The new standard requires auditors to include a discussion of the critical audit matters (CAMs).

Critical Audit Matters

A critical audit matter (CAM) is defined as one that needs to be communicated to the audit committee related to accounts/disclosures that are material to the financial statements, or one that requires complex auditor judgment. The communication of each CAM in the auditor’s report includes:

  1. identification of the CAM;
  2. description of the principal considerations that led the auditor to determine that the matter was a CAM;
  3. description of how the CAM was addressed in the audit; and,
  4. reference to the relevant financial statement accounts or disclosures.

Additional Changes

The new standard also includes several other noteworthy changes:

  • Auditor tenure — The auditor’s report will include a statement disclosing the year in which the auditor began serving consecutively as the company’s auditor;
  • Independence — The  auditor’s report also will include a statement that the auditor is required to be independent;
  • Enhancements to basic elements — Certain standardized language in the auditor’s report has been changed, including adding the phrase, “whether due to error or fraud,” when describing the auditor’s responsibility under PCAOB standards to obtain reasonable assurance about whether the financial statements are free of material misstatements;
  • Standardized form of the auditor’s report — The opinion will appear in the first section of the auditor’s report. Section titles have been added to guide the reader; and,
  • Addressees — The auditor’s report will be addressed to the company’s shareholders and board of directors or equivalents (additional addressees also are permitted).

Effective dates

New auditor’s report format, tenure, and other information: audits for fiscal years ending on or after December 15, 2017.

The effective dates for CAMs to be included in the auditor’s report are as follows:

  • For large accelerated filers: fiscal years ending on or after June 30, 2019;
  • For audits of all other companies: fiscal years ending on or after December 15, 2020

PCAOB published staff guidance on implementing the new changes.

March 25, 2018

 

 

mailby feather