SEC Approves Updates to Auditor’s Report
The Securities and Exchange Commission (“SEC”) has unanimously approved an audit reporting standard by the Public Company Accounting Oversight Board requiring significant improvements to certain public company reports. Such improvements aim to make the auditor’s report more informative and address the communication of critical audit matters (“CAMs”) and disclosures concerning auditor tenure.
The new auditor’s report is expected to offer investors meaningful insight regarding audits, such as important estimates and judgments, substantial unusual transactions, and other potential risk areas for an organization.
Speaking on the objective of the auditing standard, SEC Chairman Jay Clayton said investors will benefit from a better understanding of how auditors view CAMs. Clayton is also aware of stakeholders’ concerns about the changes to the auditor’s report, stating that he would be disappointed if the auditing standard leads to unnecessary litigation charges, defensive auditor communications, or hostile auditor-audit committee relationships. As a result, Clayton wants the SEC, the PCAOB, and everyone else participating in the implementation of the updated auditing standards to remain attentive to these issues. This includes carefully reviewing the guidance stated in the approval order and the PCAOB’s adopting release.