On 1 June 2017, the Public Company Accounting Oversight Board ("PCAOB") adopted new standard S 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. This standard generally imports reporting elements that have become standard outside the United States in recent years and is intended to make auditor's reports, which have been substantially the same since the 1940s, more informative and relevant to investors. The new standard requires auditors to disclose in their report:
- Critical audit matters, such as matters communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the financial statements, and (ii) involved especially challenging, subjective, or complex auditor judgment.
- For each critical audit matter
identified, auditors must describe the primary reasons the auditor
believes it to be a critical audit matter, how it was addressed in
the audit, and which financial statement accounts or disclosures
are relevant to the matter.
- The year in which the auditor began serving consecutively as the company auditor.
- Improved formatting, including moving the opinion paragraph to the lead section, section titles, a statement of independence and the inclusion of shareholders and directors as addressees.
The communication of critical audit matters will apply to all audit reports filed with the SEC, including by foreign private issuers.
The new standard remains subject to SEC approval, and it is anticipated that the full standard will apply to audits of fiscal years ending after 30 June 2019 for large accelerated filers, and after 15 December 2020 for all other companies to which the requirements apply.
PCAOB Standard S 3101 is available at:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.