On June 21, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release relating to possible revisions to the PCAOB’s standards relating to reports on audited financial statements. According to the PCAOB, the objective of the concept release is to discuss several alternatives for changing the auditor’s reporting model to increase its transparency and relevance to financial statement users, while not compromising audit quality. The concept release addresses various alternatives for changes to the auditor’s report to achieve this goal, including:

A supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the company’s financial statements (an “Auditor Discussion and Analysis”), which would require auditor’s reports to provide a supplemental narrative report regarding the audited financial statements. The Auditor Discussion and Analysis, in addition to providing the readers with the underlying judgments made by the auditor in forming its audit opinion, would provide context to assist in understanding the financial statements and related sections including the Management Discussion and Analysis section.

Required and expanded use of emphasis paragraphs in the auditor’s report to highlight the most significant matters in the financial statements, including significant management judgments and estimates, areas with significant measurement uncertainty, and key audit procedures performed on the identified matters. In addition, the emphasis paragraphs would identify where those matters are disclosed in the financial statements.

Requirement that auditors provide assurance as to information outside the financial statements, including items such as Management Discussion and Analysis, non-GAAP information and earnings releases. The purpose of this alternative would be to improve the quality, completeness and reliability of the information and give readers a higher level of confidence regarding information outside of the financial statements and its effect on the financial statements.

Clarification of certain language in the auditor’s report. This alternative would require the auditor’s report to include explanations regarding the nature and meaning of the auditor’s report. The clarifying explanations would address items such as reasonable assurance standard, auditor responsibilities and independence, and management responsibilities in connection with financial statements preparation, with the intention of explaining the basic principles, responsibilities and requirements currently in place.

The PCAOB is soliciting public comments on the concept release until September 30, 2011. In addition, the PCAOB will convene a public roundtable meeting in the third quarter of 2011 relating to the concept release at which interested persons will be permitted to present their views.