The SEC recently approved a new auditing standard aimed at enhancing the relevance and usefulness of the auditor’s report to investors. As discussed in a previous Ticker report, the new standard, which was adopted by the Public Company Accounting Oversight Board on June 1, retains the pass/fail model of the existing auditor’s report, but makes significant changes to the nature and scope of the report, most notably a requirement that auditors must communicate any “critical audit matters” (CAMs) arising from the current period’s audit. The new standard also requires auditors to standardize the format of the report, disclose the auditor’s tenure, state that the auditor is required to be “independent” and state that the financial statements are free from material misstatements “whether due to error or fraud.”
Provisions of the new standard other than those related to CAMs will take effect for audits for fiscal years ending on or after December 15, 2017. Provisions requiring communication of CAMs will take effect for audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for audits of all other public companies for fiscal years ending on or after December 15, 2020.
Despite the phased effective dates, audit committees are advised to engage with their auditors now. In a November 14 speech, SEC Chief Accountant Wesley Bricker suggested several questions for audit committees to ask their auditors, such as what the CAMs would be this year, citing expectation setting and ongoing communication as key for the successful implementation of the new standard.