Why change the auditor's report?

This page was published as a companion piece to the reproposal in May 2016.  

Investors asked for more information about the audits of public companies. The current auditor's report has gone largely unaltered for 70 years, while public companies and their audits have become increasingly complex. The PCAOB invited public comment on a reproposal to enhance the auditor's report issued. 

Download the PCAOB release to learn more about the proposed enhancements to the auditor's report.

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 … the specific judgments that were most critical to the auditor in arriving at the opinion.

-- Chairman James R. Doty in his statement at the open Board meeting to consider the reproposal of the auditor's report

What is a critical audit matter?

The reproposed standard would require auditors to communicate in the auditor’s report the critical audit matters arising from an audit of a company’s financial statements. When would an audit matter become a critical audit matter?

The reproposed standard is meant to better arm investors with insight previously available to, and considered by, the auditors, but not ultimately evident in the auditor's report.

-- Board Member Lewis H. Ferguson in his statement at the open Board meeting talking about the reproposal of the auditor's report

The Board is taking another step forward in addressing questions about the relevance and usefulness of the standard auditor's report. This action … deals with one of the many elements contributing to the long-standing and multifaceted "expectations gap" between what investors and other financial statement users expect of independent auditors and what auditors deliver. Although this is a significant step forward in auditor reporting, it is a small step forward when considering the overall expectations gap related to auditor performance and reporting.

-- Board Member Jeanette M. Franzel in her statement at the open Board meeting talking about the reproposal of the auditor's report

Additional resources and information

PCAOB's reproposal was discussed at the May 18, 2016, Standing Advisory Group meeting. The Standing Advisory Group includes investors, auditors, public company executives, and others.

PCAOB staff described the reproposal at this open Board meeting. The meeting included Board member statements, as well as questions from Board members and PCAOB staff answers.

Public comments are made available on the PCAOB website. 

View the comments

The Board's statutory mandate is direct: "To protect the interest of investors ... in the preparation of informative, accurate and independent audit reports." In pressing to assure that audit reports are sufficiently explanatory and useful to investors, we are simply doing what Congress charged us to do and expected us to do -- namely provide "informative" reports, which is currently not the case in the view of most investors. 

-- Board Member Steven B. Harris in his statement at the open Board meeting talking about the reproposal of the auditor's report