The Securities and Exchange Commission this week approved the Public Company Accounting Oversight Board’s AS 3101 auditing standard aimed at providing more relevant information to investors. The new standard requires significant enhancements to the existing auditor’s report, including the communication of critical audit matters arising from financial statements.
CAMs are designed to provide financial statement users with the auditor’s perspective on matters discussed with the audit committee relating to material accounts or disclosures and involving challenging, subjective or 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 standard also requires additional information regarding the auditor’s tenure and independence.
While certain changes are effective for 2017 audits, the more significant additional disclosures in the audit report, including CAMs, are required for 2019 audits for large accelerated filers and 2020 audits for other companies to which the rules apply.