In November, the AICPA’s Auditing Standards Board (ASB) is planning to issue a two-part proposal to expand the auditor’s report and focus more attention on financial statement disclosures. The proposal is part of the ASB’s effort to align its standards with the guidance of the International Auditing and Assurance Standards Board (IAASB). The ASB also considered a recently approved Securities and Exchange Commission (SEC) rule to expand the auditor’s report. Here are the details.
A two-part proposal
In July, the ASB voted to propose improvements to the contents of the auditor’s report. The proposal would align the ASB’s guidance with several new and revised standards the IAASB issued in January 2015, including International Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report. That standard requires auditors to include in the auditor’s report key audit matters (KAMs), which are the issues the auditor viewed as most significant during the examination of the financial statements and reporting systems.
Then the ASB unanimously voted in September to propose changes to the guidance for auditors when they examine a financial statement’s disclosures. The proposal would make auditors focus more attention on financial statement disclosures and address the risk of financial misstatements more explicitly. The purpose of the proposed amendments is to draw attention to disclosures earlier in the audit process.
Some of the provisions for the disclosure project affect the proposed changes to the audit report standards. So, the ASB decided to issue one exposure draft that combines the proposed amendments from the two projects.
The ASB has also examined the Securities and Exchange Commission’s (SEC’s) recently approved rule to expand the auditor’s report. (See “SEC moves ahead with controversial audit report changes.”) The changes include a requirement that auditors describe the critical audit matters (CAMs) in the auditor’s report, similar to the IAASB’s requirement to disclose KAMs.
The ASB wanted to avoid unnecessary differences between the requirements of the ASB and SEC. Although certain changes were made to the ASB’s proposal in view of the SEC reporting model, the ASB’s primary focus was on convergence with the ISAs. So, there may eventually be subtle differences between the audit reports of public and private entities.
If the ASB’s proposed amendments are finalized, they will be effective no earlier than for audited financial statements for periods ending on or after June 15, 2019. (The final effective date depends on if and when the changes are adopted.)
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