AUDITING AND ASSURANCE SERVICES: Analysis of Audit Report Changes

This report provides an overview of the key changes to audit reports, focusing on the differences between the IAASB and PCAOB standards. It highlights the PCAOB's adoption of a new report that emphasizes the relevance and significance of audit reports by including discussions of Critical Audit Matters (CAMs). The report examines the motivations behind these changes, including the need to provide investors with more vital information, and critiques whether these changes will achieve their aims. It further details the impacts of the audit reports, such as the reordering of the report to state the opinion in the initial section and the inclusion of additional sections. The report concludes that the PCAOB approach has provided sufficient time for auditors and audit committees to prepare for the implementation of CAM disclosures, ultimately aiming to arm investors with the right information for decision-making. The analysis includes references to several research papers and studies that support the claims in the report.

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The key changes to audit report
This section focuses on the similar areas and potential differences between the IAASB
and PCAOB audit reporting standards. The PCAOB has adopted a new report that seeks to
enhance the elements of relevance and significance of the audit report through the provision
of extra and vital information to prospective investors(Carver, B.T. and Trinkle, 2017, p.33).
This new standard and its related changes demand that auditors include in their report
a section of the discussion of any critical audit matter (CAM) (Gimbar, Hansen &Ozlanski,
2015, p. A24). These include those factors that are considered necessary to share out with the
audit committees who play key roles since the CAMs are directly linked to the accounts and
disclosures considered important to the financial statements. The changes that have been
adopted by the new report breathes life into the audit report and offer information to investors
who have been asking for it from auditors(Elliott, W.B., Fanning, K. and Peecher, 2016,
p.28).
There was another phased approach that sort for the board to be quite useful
considering the newer requirements. The approach offers investors and other users of these
financial statements the information needed for reasonable practice. It further allows
accounting firms, auditing committees, and companies sufficient time to prepare for the
execution of the CAM requirements of reporting(Gimbar, 2015, p.12).
The new rule is big in stating that when the auditor generated his report, he expressed
an unqualified opinion to retain the passing or failure of the model present in the report.
Evidently, it is very necessary to communicate the critical audit elements especially in the
report that marks the new era in the manner at which auditors communicate their thoughts
and findings with investors. Through the adoption of the changes, the investors will further be
armed with the right information while needed for decision-making.
Reasons and critiques for the changes

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This section seeks to provide the aspect that motivated the changes. It will further
critique if these changes would attain all their aims. The PCAOB issued two different
proposals on June 1st for comments from the public. The initial proposal sought to enhance
the needs applicable needs for auditing and accounting estimates (Gimbar, Hansen
&Ozlanski, 2015, p.A48). The proposal advises that continued monitoring will be done on
the proposal progress which has far-reaching impacts needed for preparers of company rate
financial statements.
The proposal has been designed to offer more strength to the needs applicable when
the audit team utilizes the works of specialists who have been engaged by the companies or
the auditors only for an audit context. PCAOB has shown that it views the proposal to be a
highly complementary element since auditors continuously use the specialists’ work.
Auditors need these works to help them while testing the process of the company to come up
with an accounting estimate.
Additionally, the first proposal had a description of the audit approach. This included
the focus areas and the key risks studied during the audit. For instance, for those companies
relying on long-term contracts, they know this as those issues like revenue recognition also
referred to CAMs. This described the way in which the audit was done in a practical sense the
entities audited, the amount of business represented by the company and the level for relying
on the audit team (Gimbar, Hansen &Ozlanski, 2016, p. A24).
In the past before the adoption of the proposed changes, investors were not very much
interested in the focus areas and key risk areas disclosures. However, presently they have
been pressing auditors and companies to ensure the presence of specific and clear analysis in
these elements in the business of the company. Lately, investors have been expecting a clear
explanation of the needs for finding out specific focus areas and explanations of the manner

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in which risk may have financial effects on companies(Grenier, Reffett, Simon & Warne,
2017, p. 54).
Impacts of the audit reports
The adoption of the proposal would impact the reporting structure of the audit
immensely. The standard would demand of the auditor to report on a statement that they are
independent. They must also state that due to the standardized language of the report, the
addition of the phrase, “whether due to error or fraud,” while stating their responsibility as
per PCAOB standards is reasonable enough and free from material bias and misstatements.
The report must be reordered to state the opinion would occur in the initial section.
Additional sections on the titles of the report must be capturedsuch as the address to the
shareholders, directors or equivalents (Kipp, 2017, p.40).
Insummary, the PCAOB approach to the new standards has allowed auditors, audit
management and their committee’s sufficient time for the preparation of CAM disclosure
implementation. The adoption of the new standards meant new formatting, tenures and other
necessary information captured in the audit report (Ratzinger-Sakel &Theis,2017, p.29). The
audits would not be required to conduct CAM disclosures on brokers, dealers, employees
stocks, savings, investment companies and similar plans unless they want to voluntarily
disclose them.

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References
Carver, B.T. and Trinkle, B.S., 2017. Nonprofessional Investors’ Reactions to the PCAOB's
Proposed Changes to the Standard Audit Report.
Elliott, W.B., Fanning, K. and Peecher, M.E., 2016. Do Investors Value Financial Reporting
Quality Beyond Estimated Fundamental Value? And, Can Better Audit Reports
Unlock This Value. Working paper, University of Illinois at Urbana-Champaign.
Gimbar, C., 2015. Effects of Experiential and Reflective Interventions on Novice Auditor
Selection of Evidence Gathering Techniques (Doctoral dissertation, Virginia
Polytechnic Institute and State University).
Gimbar, C., Hansen, B. and Ozlanski, M.E., 2015. Early Evidence on the Effects of Critical
Audit Matters on Auditor Liability. Current Issues in Auditing, 10(1), pp.A24-A33.
Gimbar, C., Hansen, B. and Ozlanski, M.E., 2016. The effects of critical audit matter
paragraphs and accounting standard precision on auditor liability. The Accounting
Review, 91(6), pp.1629-1646.
Grenier, J.H., Reffett, A., Simon, C.A. and Warne, R.C., 2017. Researching Juror Judgment
and Decision Making in Cases of Alleged Auditor Negligence: A Toolkit for New
Scholars. Behavioral Research in Accounting.
Kipp, P.C., 2017. The Effect of Expanded Audit Report Disclosures on Users' Confidence in
the Audit and the Financial Statements (Doctoral dissertation, University of South
Florida).
Ratzinger-Sakel, N.V. and Theis, J.C., 2017. Does Considering Key Audit Matters Affect
Auditor Judgment Performance?.