On August 13, 2013, the Public Company Accounting Oversight Board (PCAOB) proposed two new auditing standards, “The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion” and “The Auditor’s Responsibilities Regarding Other Information in Certain Documents Containing Audited Financial Statements and the Related Auditor’s Report.” PCAOB Release No. 2013-005 (Aug. 13, 2013). These proposed rules, if implemented, would expand in certain significant ways the nature and scope of disclosures in the auditor’s report on financial statements.
The auditor’s report is the primary means by which the audit firm communicates to users of a company’s financial statements information regarding its audit of those financial statements. In its current form, the auditor’s report identifies the financial statements that were audited, describes the relative responsibilities of management and the audit firm as they relate to the financial statements, describes generally the nature of an audit, and provides the auditor’s opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the company in conformity with the applicable financial-reporting framework. This type of auditor’s report is often described as a “pass/fail” model because the auditor opines on whether the financial statements are fairly presented (pass) or not (fail).
The form of the unqualified auditor’s report in the United States—generally three paragraphs, containing an introduction, a scope, and an opinion—has changed very little since the 1940s. In recent years, however, there have been efforts, prompted by investor concerns, to modify or expand the auditor’s report to provide additional information specific to the audit of the company’s financial statements. These proposed standards are the product of three years of study by the PCAOB that included discussions with investors, financial-statement preparers, auditors, audit-committee members, other regulators and standard setters, and representatives of academia; a concept release issued in June 2011; 155 comment letters on the concept release; and a September 2011 public roundtable.