The Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard last week requiring auditors to include a discussion of the critical audit matters (CAMs) in their reports to investors.
CAMs are matters that have been communicated to the audit committee, are related to accounts, or are disclosures that are material to the financial statements, and have involved especially challenging, subjective, or complex auditor judgment.
“The changes adopted today breathe life into the audit report and give investors the information they’ve been asking for from auditors,” PCAOB Chairman James Doty said. “The U.S. also now joins many other countries in adopting an expanded audit report.”
Under the new standard, the auditor’s report will disclose, among other things, the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company’s auditor. It also will include the phrase, “whether due to error or fraud,” in describing the auditor’s responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.
“The communication of critical audit matters in the auditor’s report will mark a new era in the way auditors communicate with investors,” Martin Baumann, PCAOB Chief Auditor and Director of Professional Standards said. “Investors will have a view inside the audit and will be armed with useful information when making important decisions.”
The new rules are subject to approval by the Securities and Exchange Commission.