Statement on Adoption of an Auditing Standard on the Auditor’s Report
Investors have long called for enhancing the auditor's report, given the effort involved and the value the auditor brings to investor confidence.
With a global economy, companies' operations have become more complex, and financial reporting frameworks have evolved toward an increasing use of estimates. As a result, auditors must frequently make challenging, subjective or complex judgments.
These evolutionary developments are the reason investors want more information about the auditor's work. The new auditing standard before the Board today is the first significant change to the standard form auditor's report in more than 70 years.
It will make the auditor's report more relevant, useful and informative to investors and other financial statement users in light of the progress of history. The new standard will breathe new life into a formulaic reporting model.
The standard before the Board today is grounded in considerable outreach to investors, auditors, capital-seeking securities issuers, academics and others, plus three extended public comment periods over a period of more than six years. It is backed up by a robust economic analysis of the impact of making audit reports more informative to our capital markets.
In today's complex economy, and particularly in light of lessons learned after the financial crisis, investors in our public capital markets want a better understanding of the judgments that go into an auditor's opinion – not a recitation of the standard procedures that apply to any audit, but the specific judgments that were most critical to the auditor in arriving at the opinion.
The new standard provides a clear, well-vetted description of what should be included as "critical audit matters" – or "CAMs" – as well as a list of six factors the auditor should take into account in determining the CAMs to include.
The standard envisions that auditors describe their critical audit judgments. It does not put them in the position of speaking for management.
By focusing on auditor judgments, the new standard delivers on the Congress's intention, expressed in Section 101(a) of the Sarbanes-Oxley Act, to further the public interest in the preparation of more informative audit reports for public investors.