The PCAOB on Dec. 28, 2017, updated its staff guidance for auditor reports to provide accounting firms more guidance in complying with the regulatory board’s expanded reporting requirements.
In particular, Staff Guidance: Changes to the Auditor's Report Effective for Audits of Fiscal Years Ending on or After Dec. 15, 2017 – Updated as of Dec. 28, 2017, provides additional information to guide accounting firms when determining the tenure, or length of time they have served a client. The tenure disclosure is one of the requirements in Release No. 2017-001, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards. The PCAOB adopted the standard in June to make auditor reports more useful to investors.
The rule went into effect for audits of public company financial statements for fiscal years that ended on Dec. 15, 2017, or later. The SEC, which needs to approve board standards before they become effective, endorsed the changes in October.
The update to the interpretive guidance adds a couple of paragraphs on page 4 to the previous version of the staff guidance issued on Dec. 4, 2017.
The extra information says that if auditors do not know when an initial engagement letter was signed, they can look to their records, the client’s records, or publicly available information such as client filings with the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
“In the absence of other evidence about when the auditor signed an initial engagement letter or began performing audit procedures, tenure can be determined based on the year in which the auditor first issued an audit report on the company’s financial statements or, if earlier, the auditor’s estimate of when work would have commenced to enable the issuance of such report,” the Dec. 28 update says.
The main element of the standard requires auditors to include a discussion of critical audit matters (CAMs), which the PCAOB defines as issues that are significant enough that the auditor reported them to the audit committee. The critical matters also include issues that are related to accounts or disclosures that are material to the financial statements. In other cases, a matter can be considered critical because it required an auditor to make a subjective decision or use complex judgment.
The critical matters are scheduled to apply to audits of year-end 2019 financial statements for what the SEC calls large accelerated filers, which are companies with market values of $700 million or more. Smaller companies have an extra year to begin applying the critical matter requirement.
In addition to the staff guidance, the board has been holding webinars to help auditors implement the changes.
The PCAOB said it will monitor implementation of the new requirements and issue additional guidance as necessary.
For more information on this topic, or to learn how Baker Tilly SEC accounting specialists can help, contact our team.
We have partnered with Thomson Reuters to issue our monthly SEC accounting insights. Please feel free to contact Baker Tilly at email@example.com if you have any questions related to these articles or Baker Tilly's Accounting and Assurance Services. © 2018 Thomson Reuters/Tax & Accounting. All Rights Reserved.