PCAOB SAG Welcomes Proposals for Increased Transparency in Auditor Reports

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7 June 2016

The Public Company Accounting Oversight Board (PCAOB) has issued a reproposal of a standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion’.

This proposed standard would supersede portions of AS 3101, ‘Reports on Audited Financial Statements’, and related amendments to PCAOB standards. The deadline for comments on the reproposal is 15 August 2016.

The reproposed standard takes account of comments made on the PCAOB’s earlier proposal in 2013, subsequent comments thereafter and international developments.

The concept of critical audit matters as originally proposed has been retained, but the reproposed requirements have been narrowed in a number of respects, including by:

  1. Limiting the source of potential critical audit matters to matters communicated or required to be communicated to the audit committee;
  2. Adding a materiality component to the definition of critical audit matter;
  3. Narrowing the definition to only those matters that involved especially challenging, subjective, or complex auditor judgment; and
  4. Revising the related documentation requirement.
  5. Expanding the communication requirement to require the auditor to describe how the critical audit matter was addressed in the audit.

The reproposal was considered by the PCAOB’s Standards Advisory Group (SAG) at its recent meeting on 18 and 19 May.

The proposal if adopted would move the PCAOB in the direction of the UK Financial Reporting Council (FRC) and International Auditing and Assurance Standards Board’s (IAASB) auditor reporting standards.

The audit report is the visible end product of the audit process and this development is to be welcomed in terms of the global alignment of auditing standards.

SAG member, Sir David Tweedie, ICAS Past President and former IASB chairman, was supportive of the reproposal and advised that it leads to increased transparency by moving disclosure “towards what investors want to see” rather than what the company wants investors to see.

As per the 2013 proposal, the reproposed communication of critical audit matters would not change the auditor's current role of attesting to information prepared by management.

It would generally apply to audits conducted under PCAOB standards. However, unlike the 2013 proposal, communication of critical audit matters would not be required for audits of brokers and dealers reporting under the Securities Exchange Act of 1934 ('Exchange Act') Rule 17a-5; investment companies other than business development companies; and employee stock purchase, savings, and similar plans ('benefit plans').


  • Audit and Assurance
  • Corporate and financial reporting

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