The new proposal before the Board today builds on our initial proposal to make the auditor's report more useful and informative to investors and other financial statement users.
I'm grateful to the many investors, auditors and others who took time to comment on the initial proposal. The comments helped us understand what is important to investors as well as what auditors are best able to deliver to them.
Investor comment confirmed the importance of retaining the binary, pass-fail opinion. But in today's complex economy, and particularly in light of lessons learned after the financial crisis, investors want a better understanding of the judgments that go into an 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.
While there has been promising experimentation abroad, describing those judgments in a way that is appropriate and most useful for dispersed share owners is new to the United States. Many auditors supported the goal to provide more informative reports, but in their comments they asked for more clarity on the framework for determining and discussing such judgments in the report.
I believe today's proposal benefits from experience and appropriately addresses comments received.
Most important, the proposal provides a refined description of what would be included as "critical audit matters" as well as a list of six factors the auditor should take into account in determining the CAMs to include.
As with the original proposal, the new proposal envisions that auditors describe their critical audit judgments. It does not put them in the position of speaking for management.
But by focusing on auditor judgments, it does deliver 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.
I look forward to public comment on this proposal, including on the economic analysis supporting it. I believe we have come to the right approach. Through this process, we have developed a solid foundation to be able, soon, to adopt final rules and move to implementation.
Before I turn to my fellow Board members for their statements and questions, let me say that today's vote could not have been achieved without the encouragement and support of the Hon. Mary Jo White, Chair of the SEC, and the active involvement of her Chief Accountant, Jim Schnurr. To both, I express my thanks.
I also thank the other SEC staff who worked on this project as well as my fellow Board members for their close consultation in this effort. Their assistance has been critical to helping us bring this project to fruition.
Finally, let me reiterate my deep gratitude to the staff in the PCAOB's Office of the Chief Auditor, the Office of the General Counsel, the Center for Economic Analysis, and the Office of Research and Analysis. Their indefatigable openness to research and analysis and their tireless attention to detail, have made today's action possible.