SEC Approves the New PCAOB Auditor Reporting Model

November 2017

2017 Auditors Report - Final RuleThe SEC has approved the PCAOB’s final auditor reporting standard which will have staggered implementation that effects audits for fiscal years ending on or after December 15, 2017.  While the pass/fail opinion has been retained, several significant changes to both format and required disclosures will necessitate increased attention by audit committees and management along with their auditors during the coming audit cycles.

What’s Changing?
On October 23, 2017 the SEC) approved the PCAOB’s new auditor reporting standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, as adopted by the PCAOB in June 2017. The SEC also approved related amendments to certain other PCAOB standards.

As noted in BDO’s prior Alert, the new standard and related amendments, which will replace portions of AS 3101, Reports on Audited Financial Statements, retain the pass/fail opinion in the existing auditor’s report, but significantly change the existing auditor’s report to include a discussion of “critical audit matters” (CAMs) that have been communicated to the audit committee, particularly those that involve especially challenging, subjective or complex auditor judgment. The new standard also requires disclosure of the auditor’s tenure (i.e., the year in which the auditor began serving consecutively as the company’s auditor) within the auditor’s report, and requires other formatting changes to the auditor’s report.

Which Audits Are Impacted and When?
The standard and amendments generally apply to audits conducted under PCAOB standards; however, communication of CAMs is not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans. Auditors of these entities may choose to voluntarily include CAMs in the audit report.

The final standard and amendments will take effect as follows:
New Auditor Reporting Provisions Effective Date
Report format, tenure, and other information Audits for fiscal years ending on or after December 15, 2017
Communication of CAMs for audits of large accelerated filers Audits for fiscal years ending on or after June 30, 2019
Communication of CAMs for audits of all other companies Audits for fiscal years ending on or after December 15, 2020
The PCAOB plans to do a post-implementation review of the new standard to make sure it is working as intended and does not lead to any unintended consequences. Consistent with the views set out in BDO’s comment letter to the SEC, the SEC Chairman Jay Clayton emphasized that, “The phased effective dates for CAMs should facilitate some early-stage analysis through the PCAOB’s Post-Implementation Review process, based on the experiences of large accelerated filers. Depending on the findings of this analysis, including an evaluation of unintended consequences, the board should be open to making changes, if necessary, to the revised auditing standards, including to the effective date for companies other than large accelerated filers.”

Where to Learn More?
The new standard and amendments have not yet been posted to the Auditing Standards section of the PCAOB website, but can currently be found at (see page A1-1 for AS 3101).

BDO will be providing updated guidance to our clients and contacts on evolving developments with respect to the new auditor’s reporting model in the form of thought leadership, infographics, examples, and educational opportunities through our Center for Corporate Governance and Financial Reporting.

We encourage audit committees and management to be engaging in robust dialogue about the changes required by AS 3101 and how this will impact current and subsequent years’ audits.

For more information, please contact one of the following practice leaders: 
Jan Herringer
National Assurance Partner
Amy Rojik
National Assurance Partner