Question

Short Writing

“The Public Company Accounting Oversight Board adopted a new auditor reporting standard that will make the auditor's report more relevant to investors by requiring more information about the audit.

The standard includes the communication of critical audit matters (CAMs), which will inform investors and other financial statement users of matters arising from the audit that required especially challenging, subjective, or complex auditor judgment, and how the auditor responded to those matters.” (PCAOB 2017)

I have attached the Fact Sheet from the June 1, 2017 PCAOB Press Release: PCAOB Adopts New Standard to Enhance the Relevance and Usefulness of the Auditor's Report with Additional Information for Investors:

https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspx

I have also attached the Final Audit Standard - PCAOB Release No. 2017-001 June 1, 2017 PCAOB Rulemaking Docket Matter No. 034 - to the assignment in TCU Online and provided the link below:

https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspx

Please prepare a brief, but thoughtful, note commenting on this topic. What are the arguments for and against the additional disclosure? Do you think that the PCAOB made the right decision? If you were a partner at a public accounting firm, would you be for or against the additional disclosure? Why? Please limit your response to 250 words or fewer not including reference list.

*You are not limited to the resources noted.

References:

Public Company Accounting Oversight Board (PCAOB). 2017, June. Fact Sheet: Adoption of an Auditing Standard on the Auditor’s Report. June 1, 2017 Press Release Washington, D.C.: PCAOB

Retrieved from:

https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspx

Public Company Accounting Oversight Board (PCAOB). 2017, June. PCAOB Release No. 2017-001. The Auditor's Report On An Audit Of Financial Statements When The Auditor Expresses An Unqualified Opinion And Related Amendments To PCAOB Standards. Washington, D.C.: PCAOB

Retrieved From:

https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspx

Answer 1

As per the new audit standard, the auditor has to comply with the additional disclosure requirement for Critical Audit Matters (CAM) which is defined as the matters which are necessary to be communicated with the audit committee and includes matters related to accounts and disclosures material to true and fair view of financial statements and matters involving challenging, subjective and complex auditor's judgement.

Arguments in favor of the standard: This standard will help investors understand the Critical Audit Matters and the judgement or stand taken by the auditors in relation to such matters.

This standard will act like a defence for the auditor in case, in future any problem arises due to such CAMs. As the auditor has already reported such matters and shown his judgement on such matters.

THe auditors report will be in a standard format making it easy for the users to understand the report.

Arguments against the standard: This standard will increase the work of an auditor due to additional requirements.

The standardized format of audit report might not be possible for all types of organizations.

The time for audit is limited and hence additional disclosure requirements might increase the time to finish the audit. etc.

According to me, the decision made by PCAOB related to the said standard is right. I believe this will help insure the interests of both the auditor and the users of the audit report. CAMs reported will help the investors understand the complex matters and the stand taken by the auditors. The auditor in turn is free from future problems arising due to such CAMs.

If I were a partner in a CPA firm, I would have been in favor of this standard as even though it increases auditor's work, it also offers benefits to the auditor. which are stated above.