In a sharp retort to the Public Company Accounting Oversight Board’s proposal to change the standard auditors report, the ABA called on the PCAOB to suspend the project and provide transparency over audit expectations to both auditors and the companies they are auditing.
The proposal, which largely reflects requirements recently implemented in Europe, would require auditors to discuss how they addressed “critical auditing matters” — those that are especially challenging, subjective, or complex during the audit. Citing the large increase in supporting documentation that auditors have been requiring of banks over the past several years, ABA in a letter noted that under the new standard, if passed, “check-the-box-like audit procedures that require overly-detailed documentation… will become a central part of registrant audits.”
Since complex issues like credit losses, fair value accounting, and derivative accounting are so prevalent to banks, ABA noted that bank audit opinions are likely to span pages and most prudent investors will likely ignore the report. The proposal could also largely diminish the purpose of the audit committee. The PCAOB is expected to make a final decision on a new standard by the end of the year.