Auditing and Assurance Services: Impact of New Reporting Standards

This report examines the key changes adopted by the PCAOB to enhance the usefulness and relevance of auditor reports, including the discussion of Critical Audit Matters (CAMs) and the disclosure of auditor tenure. It compares the PCAOB's approach with the International Auditing and Assurance Standards Board (IAASB), highlighting similarities such as increased transparency and two-way communication with audit committees, as well as key differences in requirements. The report further analyzes the motivations behind these changes, emphasizing the importance of transparency and sound investor relations, and assesses the likely impact of the new audit reporting requirements on audit practices, including extended practices, reduced risk of misstatement, and improved financial statement disclosures. References from Clearygottlieb, IAASB, Iodsa, PCAOB, and PwC are included.

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Auditing and Assurance Services
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Key Changes
The key changes that have been adopted by PCAOB in order to enhance the
usefulness as well as the relevance of the report of auditor through providing important and
additional information to the investors. According to the new standard, critical audit matters
(CAMs) need to be discussed in the auditor's report and these matters are required to
communicate to audit committee (Weingarten, 2017). These are related to the disclosure or
the accounts that are important for the financial statement. In the new standard, the report of
auditor will disclose, among the other things and an auditor's tenure. The investors will be
allowed to have to view the audit and also provided with the useful information for the
purpose to make the important decisions (PCAOB, 2017).
Differences between the PCAOB and the International Auditing and Assurance
Standards Board (IAASB) Audit Reporting Requirements
The approaches that are taken by IAASB and PCAOB for the purpose of enhancing
the report of auditor are similar. The approach is used in order to provide transparency in a
higher proportion, to the investors and others as well, that is related to the matters of audit
and establishing the two-way communication during the process of audit with TCWG.
Differences
In case of IAASB standard, description of KAM for the related disclosure should
address: why matter is significant in audit? and how matter was addressed in audit? However,
in case of PCAOB reproposal, for every CAM that is communicated, the auditor need to:
identify CAM, describe the main considerations for determination of CAM, how it is
addressed, and finally refer to financial statement accounts and the disclosure related to
CAM. IAASB standard requires that the identification of ethical requirements that are related
as well as independent of the auditor should be stated in a statement in Basis for Opinion
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section, along with that, it should be also stated that the auditor has fulfilled all the ethical
responsibilities. While PCAOB reproposal requires a statement in Basis for Opinion section
as evidence that auditor is independent and is a registered public accounting firm with
PCAOB included. IAASB standards requires disclosure of engagement partner’s name. On
other hand in PCAOB, engagement partners as well as other accounting firms should be
disclosed along with the audited entities. In both IAASB and PCAOB, the opinion section
should be presented and after that Basis for Opinion selection. However, in case of IAASB, a
different order may be followed if prescribed by law or regulation. In case of IAASB, the
modification of the opinion by the auditor should be included in Basis for Opinion section
while in PCAOB, opinion modification should be included in Opinion section. As per IAASB
standards, all the responsibilities related to the management, auditor's responsibility, features
of audit should be described separately in auditor's report. Also, the paragraphs related to
emphasis of matter as well as the other matter are also needed in certain circumstances.
However, in case of PCAOB emphasis paragraph should be included. Also, standardized
language enhancements should be described in PCAOB standards for acquiring the
reasonable assurance.
Similarities
There are many similarities between PCAOB and the International Auditing and
Assurance Standards Board (IAASB). Both PCAOB and IAASB used the similar approach
for the enhancement by providing the high level of transparency to the investors and other as
well as established the two-way communication which will take place between the investors
and the audit committee during the process of auditing and making auditing report by the
auditor. Both requires to identify the communication matters to be CAM or KAM and only
for the current period. Both requires providing with the description of the matter for the
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purpose to prevent standardized language and reveal the particular circumstances of matter.
d) Introductory language is included in both PCAOB and IAASB (IAASB, 2016).
Reasons/Motivation for the Changes and Critique
The change has been introduced in the auditor's report. The motivation or the reasons
behind the change in the auditor's report is that, by the involvement of the transparency and
establishment of the two-way communication in the process of audit with the investors, will
be able to help in managing a sound relationship during the audit reporting process, through
the disclosure of the requirements for the auditing report between the audit committee and the
investors and the others. The two-way communication enhances the relationship between the
investors, others who make use of the auditor's report and the audit committee
(Clearygottlieb, 2017).
Likely Impact of the New Audit Reporting Requirements On Audit Practice
The impact of the audit reporting on audit practice is that the disclosure of the major
statements and the related facts in the new reporting system has enabled a transparency in the
process of auditing among the invertors and the audit committee. The information about the
auditor, the description of the CAM and KAM along with the basis of these matters,
description of the specific responsibilities, and disclosure of the engagement partners as well
as the modification in the option helped in providing the high level of transparency, which
will help in carrying out the audit in a sound manner. The practices have become more
extended as the disclosure of the different essential facts takes time, but it will allow carrying
the process of audit reporting in a smoother manner. The risk of misstatement will not
occur. The financial statement will be able to disclose in a transparent manner and will also
benefit the public interest (Iodsa, 2015).
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References
Clearygottlieb. (2017). New PCAOB Standard Will Mean Big Changes in Audit Reports .
Clearygottlieb.com.
IAASB. (2016). The New Auditor’s Report:A Comparison between the ISAs and the US
PCAOB Reproposal. New York: IAASB.
Iodsa. (2015). The impact of the new auditor’s report. Retrieved from www.iodsa.co.za:
http://www.iodsa.co.za/news/241065/The-impact-of-the-new-auditors-report.htm
PCAOB. (2017). PCAOB Adopts New Standard to Enhance the Relevance and Usefulness of
the Auditor's Report with Additional Information for Investors. Pcaobus.org.
Weingarten, N. (2017). PCAOB requests comment on reproposal to significantly change the
auditor’s report. Pwc.com.
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References
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