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September 22, 2011

PCAOB roundtable agrees auditor reporting should change

US oversight body proposals to change the auditor’s reporting model have been backed by experts among investors, preparers and audit firms.

Participants at the Public Company Accounting Oversight Board (PCAOB) roundtable all agreed on the need to change the auditor’s reporting model but their views differed on how to enhance the relevance of auditors’ communications with investors.

One idea the PCAOB proposed is for auditor discussion and analysis (AD&As) to be included in the auditor report, which would provide the auditor with the ability to discuss in a narrative format views regarding significant matters.

“The benefits of AD&As are many. They would provide investors valued information from an independent expert that is relevant for investors analysing and pricing risks and making an investment and voting decisions,” Council of Institutional Investors executive director Ann Yerger said in support of the proposal.

Yerger thinks the additional information should come from “the audit firms and not management or audit committees as audit firms are objective, third-party experts that have unique insights into companies”.

Deloitte US’s deputy chief executive Bob Kueppers argued that management should remain the provider of information and the auditor should be the provider of assurance on that information.

“Changes should enhance or at least in no way diminish present-day audit quality, and I think changes should serve to narrow or at least not widen the expectation gap,” Kueppers remarked.

He also stressed that with the current reporting deadlines it is “extremely” hard to “get it all done, wrapped up, get our papers ready for inspection, everything that has to be done, all within a very compressed timeframe”.

Xerox Corporation vice president and chief accounting officer Gary Kabureck agreed that instead of increasing auditor disclosures, management disclosures should expand.

 “AD&A is not going to be free or even cheap. On the contrary, when dealing with external report drafting of this type, this tends to be very expensive time,” Kabureck said.

Further proposals

The other proposals discussed at the roundtable include:

  •  the required and expanded use of emphasis paragraphs;
  • auditor assurance on other information outside the financial statements; and,
  • clarification of language in the standard auditor’s report.

PCAOB chairman James Doty concluded the debate by stating that the board’s proposals are not intended to put the auditor in the position of creating and reporting financial information for management.

“As the concept release states, the alternatives are not mutually exclusive. A revised auditor’s report could include one or a combination of these alternatives or elements of these alternatives”.

 

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