The Public Company Accounting Oversight Board has been pilot testing its upcoming requirements for auditors to disclose “critical audit matters” in their audit reports, helping them fine-tune how the process will work.
Last year, the PCAOB adopted a long-awaited standard for enhancing the usefulness of the auditor’s report by requiring auditors to include a discussion of any critical audit matters, or CAMs, they encountered during their audits. Some of the requirements of the new standard for the auditor’s reporting model have already taken effect, but the CAMs requirements are phased in, starting with audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for all other companies for fiscal years ending on or after Dec. 15, 2020.
PCAOB deputy chief auditor Jennifer Rand said during an audit conference Tuesday at Baruch College in New York that the PCAOB staff is developing guidance for the new standard that should be available early next year. In the meantime, some companies have been testing out the new requirements with the PCAOB.
“I know from our Investor Advisory Group meeting a few weeks ago investors are very excited to see this,” she said. “They are hopeful that auditors will provide audit-specific information. They are interested in learning what the significant issues are for the auditors, so we’re very hopeful we will be successful in our implementation of this. We know that many auditors are already working on doing pilot testing and dry runs of critical audit matters, working with audit committees and management. We’ve been hearing some very positive feedback about that. We’re very encouraged that’s happening so that once it does go into effect, it’s not catching anyone off guard. We know it’s a very big change for auditors and, if you’re involved connected with the pilot testing and dry runs, we’re very much appreciative of your effort in connection with that. If there are any questions that come up with that or any challenges, we want to hear what those are.”
Securities and Exchange Commission deputy chief accountant Marc Panucci also spoke at the conference and said the SEC is interested in monitoring the implementation of the new auditor’s report and the new CAMs, as well as the feedback they hear back about them. “Our understanding is there’s a lot of effort going on around the dry runs,” he said. “The firms are trying to touch as many, if not all, large accelerated filers since they’re the ones that are going to have to do it in ’19. Our understanding of audit committees of those companies, if they’re not seeing it, they’re raising their hand and asking for it because they see the benefits of the dry runs.”
Panucci also expressed support for the PCAOB’s all new slate of board members, along with the PCAOB’s recently unveiled strategic plan and reassessment of its processes. “The new board’s been fully in place since about April, and quite honestly we think they’re off to a great start,” he said. “Relationship-wise, we have a great relationship with the board and with the PCAOB staff. We want to make sure we’re well coordinated. Where appropriate we’re trying to speak with one voice. We’re trying to do more things together so people see externally how we work behind the scenes.”
Rand said the PCAOB is nearing completion on some of the other standards it has been working on in recent years and is getting close to releasing its standards on accounting estimates and the use of specialists. It is also finishing up its standard on relying on the work of other auditors. Next year, she added, the PCAOB is planning to work on standards for the use of technology by auditors.
