Back in August of 2013, the PCAOB floated a few new auditing standards that would bring major changes to audit reports: The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, which would supersede portions of AU sec. 508, Reports on Audited Financial Statements, and The Auditor's Responsibilities Regarding Other In formation in Certain Documents Containing Audited Financial Statements and the Related Auditor's Report, which would supersede AU sec. 550, Other Information in Documents Containing Audited Financial Statements.
As the PCAOB writes in its proposal, the audit report is "the means by which the auditor communicates with investors and other financial statement users information regarding his or her audit of the financial statements." The current audit report — which has changed very little since the 1940s — identifies the financial statements that were audited, the nature of the audit, and presents the auditor's opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the company in conformity with _____________ [name applicable financial reporting framework here].
In batting this idea around, the PCAOB wanted to know if auditors wanted to disclose more critical audit matters in their reports. Unsurprisingly, auditors said hell no.
Rather than divulge every worry that kept them up at night during an audit, some auditors feel that they should limit their reporting of “critical audit matters” to the anxieties they’ve reported to the audit committee, according to an analysis of a field test of the Public Company Accounting Oversight Board’s proposal to revamp the auditor’s report.
Issued on August 13, 2013 after years of deliberation, the proposed auditing standard would require auditors to communicate critical audit matters (CAMs) in the auditor’s report on the financial statements of corporate clients. The PCAOB defines CAMS as those issues “that involved the most difficult, subjective, or complex auditor judgments … posed the most difficulty to the auditor in obtaining sufficient appropriate evidence; or … posed the most difficulty to the auditor in forming an opinion on the financial statements.”
Those matters, which the PCAOB expects would appear in most audit reports, should be of such pressing importance that auditors have either already reported them in their engagement completion documents, had them reviewed by engagement quality reviewers, communicated them to the audit committee, or a combination of the three, according to the proposed standard.
The Center for Audit Quality performed a field test of the proposed rule change and found it to be time-consuming, tedious, and repetitive. "98% of the actual CAMs identified during the course of field testing were previously communicated to the audit committee," the CAQ said.
CFOs aren't really feeling this proposed change either. Back to CFO.com:
CFOs have mostly opposed the PCAOB plan. Among finance chiefs who commented on the proposal before it was issued in its current form, Carol Tomé, CFO of Home Depot, was fairly typical. In her letter to the PCAOB, she wrote, for example, that management, “with the oversight and input from the audit committee, is in the best position to determine whether are financial disclosures are complete, accurate and provide our investor community with appropriate insight into our business.”
On the other hand, the company’s auditor “is not well suited to independently report information about the company beyond what is required to be disclosed by management under GAAP and SEC regulations,” Tomé wrote.
That reads to me as though Tomé is telling the PCAOB to butt the hell out and stick to what it knows instead of bypassing other regulatory bodies by requiring auditors to stick all kinds of new stuff in audit reports. No?