What was changed?
The new auditing standard retained the pass/fail opinion of the existing auditor's report, but made significant changes to the auditor's report, including:
- Communication of critical audit matters—matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment.
- Disclosure of auditor tenure—the year in which the auditor began serving consecutively as the company's auditor.
- Other improvements to the auditor's report—a statement that the auditor is required to be independent, changes to certain standardized language in the auditor's report, and changes to the standardized form of the auditor's report.
Additional information on the new auditing standard:
Why did the PCAOB adopt this standard?
The PCAOB adopted the standard to make the auditor's report more relevant to investors and other financial statement users by requiring more information about the auditor and the audit.
The communication of critical audit matters arising from the audit is intended to inform investors and other financial statement users about matters that required especially challenging, subjective, or complex auditor judgment, and the response that the auditor had to those matters.
Disclosure of auditor tenure in the auditor's report will make this information readily accessible in a timely way for investors who find it useful.
The other improvements to the auditor's report are intended to enhance the user's understanding of the auditor's role and responsibilities related to the audit of the financial statements, make the auditor's report easier to read, and provide a consistent format.
How is the PCAOB monitoring the new standard's implementation?
We strive to be proactive, accessible, transparent, and clear in our communications about the new standard and its implementation. We are proactively providing information and training directly to auditors. Our standard-setting professionals are also providing guidance and responding to specific questions via telephone or email. We are engaging with key stakeholders to better understand their experiences and any implementation questions that may need to be addressed.
The PCAOB is observing what audit firms are doing to implement the new requirements, placing particular emphasis on how they are preparing to identify and communicate CAMs. The staff is working to prevent and detect problems during implementation by:
- Monitoring audit firms through communications with them.
- Promoting compliance through inspections of audit firms.