United States

SEC approves auditor reporting standard


On October 23, 2017, the SEC issued an order approving the Public Company Accounting Oversight Board (PCAOB)’s new auditor reporting standard in Release 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. The standard requires auditors to provide additional information in their reports on audits of financial statements, including information about critical audit matters (CAMs). A CAM is defined as a matter that was communicated or required to be communicated to the audit committee and that:

  • Relates to accounts or disclosures that are material to the financial statements, and
  • Involved especially challenging, subjective, or complex auditor judgment.

When determining whether a matter involved especially challenging, subjective or complex auditor judgment, the auditor takes into account certain factors, including the auditor's assessment of the risks of material misstatement.
The communication of each CAM in the auditor's report includes:

  • Identification of the CAM;
  • A description of the principal considerations that led the auditor to determine that the matter was a CAM;
  • A description of how the CAM was addressed in the audit; and
  • Reference to the relevant financial statement accounts or disclosures.

In addition, the final standard includes requirements to provide information about auditor tenure (i.e., a statement disclosing the year in which the auditor began serving consecutively as the company's auditor), and a statement that the auditor is required to be independent. Also, the new standard includes some changes to the format of and verbiage used in the standard auditor’s report. For example, the auditor’s role has been clarified, the auditor’s opinion is now the first section of the report, and headings have been added to the various report sections.

The final standard applies to audits conducted under PCAOB standards. Communication of CAMs is not required for audits of brokers and dealers; investment companies other than business development companies; employee stock purchase, savings, and similar plans; and emerging growth companies.

All provisions other than those related to CAMs will be effective for audits of fiscal years ending on or after December 15, 2017. Provisions related to CAMs will be effective for audits of fiscal years ending on or after:

  • June 30, 2019 for large accelerated filers
  • December 15, 2020 for all other companies to which the requirements apply