By Michael Gullette
The Public Company Accounting Oversight Board today approved a new auditor reporting standard aimed at providing more relevant information to investors. The new standard keeps the “pass-or-fail” opinion of the existing auditor’s report. However, in addition to clarifying the auditor’s role and responsibilities, the standard requires the auditor to communicate any “critical audit matters” arising from the financial statements.
CAMs involve significant accounts and disclosures or other areas that are challenging, subjective or include complex auditor judgment. Under the new standard, the audit opinions of banks are expected to expand greatly, as typical CAMs that auditors will likely include are discussions of the allowance for credit losses, fair value measurements, derivatives, and purchase accounting.
The new audit standard also requires disclosing the year in which the auditor first started serving a particular company. The new standard must be approved by the Securities and Exchange Commission. All the new provisions, except those related to critical audit matters, will take effect for audits on fiscal years ending on or after Dec. 15, 2017. Provisions related to critical audit matters will take effect for audits for fiscal years ending on or after June 30, 2019, for accelerated filers and 2020 for all other SEC registrants.