Public comments on the PCAOB’s concept release on the audit report on financial statements reveal that investors deeply believe that they deserve more from auditors, said PCAOB Member Dan Goelzer to a meeting of the Standing Advisory Group. There is strong support for requiring the auditor to provide insight into financial statement risk, significant judgments and estimates, and the quality of the company's accounting choices. If the comment process was an investor plebiscite, emphasized Member Goelzer, a broad auditor's discussion and analysis requirement would be the winning choice.
All that said, however, a theme expressed in many comments is that management, not the auditor, should remain the primary source of information and insight regarding the company's financial reporting. In particular, managements and directors see a serious risk of investor confusion if there are competing analytical presentations from the company and the auditor. Moreover, some commenters were concerned that the audit committee's governance role in overseeing financial reporting could be undermined by a broad auditor reporting requirement. In particular, audit committee members believe that the quality and candor of information they receive could be compromised if the kind of information about financial reporting risk and accounting judgments that the auditor provides them today routinely become public.
Questions have also been raised about whether the training and standards that currently define the profession equip auditors to create and communicate new information, as opposed to providing assurance on information created by others. Some auditors fear that the effect of that kind of responsibility could be to widen, rather than narrow, the expectations gap that already bedevils the profession and ultimately to decrease public confidence in auditing.
At the end of the day, the Board remains committed to increasing the usefulness and relevance of the auditor's report, said Member Goelzer, but creating a workable new reporting model will require the Board to make some difficult judgments. The Board's unwavering mission is to protect the interests of investors and further the public interest in the preparation of informative audit reports. In light of that mission, he reasoned, the Board must give considerable weight to the investor views it received.
Jennifer Rand, PCAOB Deputy Chief Auditor, told the SAG members about other themes running through the comments. For example, commenters generally want to retain the pass/fail audit opinion. There is also general support for auditors’ reporting on their assessments of areas of high financial statement and audit risk, and on significant judgments and estimates used in the financial statements, including sensitivity analysis.
Turning to specific groups of comments, the Deputy Chief Auditor noted that Board members, including audit committee members, oppose AD&A type reporting and have mixed views regarding required and expanded emphasis paragraph type reporting. But there is some support for assurance on information outside the financial statements in this group.
Accounting firms also oppose AD&A type reporting, said the official, but large and regional accounting firms generally support objective and factual required and expanded emphasis paragraph type reporting and attestation on the Critical Accounting Estimates section of Management’s Discussion and Analysis. Small accounting firms generally do not support additional reporting