The Future of Auditor Reporting is Here 2017

December 2017


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To the Point

A new PCAOB auditing standard and related amendments, approved by the SEC on October 23, 2017, addresses new required disclosures relative to Critical Audit Matters (CAMs), auditor tenure, and a statement on independence, among other changes to the auditor’s report.

Applies to audits of public companies – both large and small.1
The new PCAOB auditor reporting standard is the first significant change to the U.S. auditor’s report in over 70 years and follows the recent initiatives internationally to provide transparency into the audit.


Phasing In Requirements / For fiscal years ending on or after:
  • 12/15/2017: Report format, tenure, and other information
  • 6/30/2019: Communication of CAMs for audits of large accelerated filers
  • 12/15/2020: Communication of CAMs for audits of all other filers1
Early adoption permitted after SEC approval of final standard on October 23, 2017.


The Auditor’s Report: Similar But Different

The PCAOB has spent seven years and addressed close to 500 comment letters from companies, audit firms, and investors in developing the new standard that provides additional information investors have been requesting without otherwise modifying the auditor’s opinion on the financial statements as a whole. The pass/ fail opinion, which investors value, is retained in the new standard.
Through comment letters and other forums - users of financial statements have emphasized the importance of retaining the pass fail opinion as essential to their decision making about a company. The result is now an auditor’s report that requires the opinion to be the first paragraph followed directly by the basis for opinion. The communication of Critical Audit Matters (CAMs), when applicable, would follow those sections.

Reportingicon.pngReporting Raises the Bar
While the “pass/fail” model is retained, the new report includes a revised format and enhanced disclosures, specifically audit tenure and required communication of CAMs.


Auditor’s Report as a Focus for Discussion with Audit Committees

While CAMs will result from the nature of communications that are already occurring with the audit committee, the auditor is now required to provide to and discuss with the audit committee a draft of the auditor’s report prior to release.

With the introduction of CAMs, the audit report will provide information that had not previously been provided to investors and its form and content remains the responsibility of the auditor. While the new standard requires the auditor to discuss the report, which would include the treatment of any sensitive information, with the audit committee prior to release, it is anticipated that communication with the audit committee regarding potential CAMs will occur throughout the audit.



Original Information – To Disclose or Not Disclose

When describing CAMs in the auditor’s report, the auditor is not expected to provide original information unless it is necessary to describe the principal considerations that led the auditor to determine that a matter is a CAMs or how the matter was addressed in the audit.

The expectation is that auditors will generally be able to adequately convey the principal considerations and how the auditor addressed them in describing a CAMs without including information that has not already been disclosed by management. However, in the rare instance where this is not the case, auditor reporting of original information would be limited to areas within the perspective of the auditor.



What May CAMs Look Like?

Companies following the International Standards on Auditing (ISAs) implemented changes similar to CAMs for years ended 12/15/2016. Early review of these, along with illustrative examples in the PCAOB’s initial proposal, may be helpful as companies and their auditors begin to assess reporting changes.

CAMs are expected to be unique to each company’s circumstance and as such should not reflect a boiler plate approach. Monitoring examples from earlier adoption of similar standards in the U.K. and Europe may be helpful in developing an approach for selecting those matters that rise to the level of a CAMs and how best to describe those matters.


Tailoredapproach.pngProviding a More Tailored Approach

New auditor’s reporting may encourage…INNOVATION…in style, format and design.

Evolving Resources

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Next Steps?

Ensure AS 3101 and CAMs, in particular for large accelerated filers, are part of your current audit planning and wrap up discussions to raise awareness and assess potential impacts.

BDO will continue to monitor the evolution of AS 3101, along with similar ISAs, to provide timely insight and learning opportunities to our professionals, clients, and contacts.

Educating Yourselves / BDO helps you stay up to speed as new regulations are released.  

1 AS 3101 excludes the communication of CAMs for audits of brokers and dealers; investment companies other than business development companies; employee stock purchase, savings, and similar plans; and emerging growth companies.