SEC approves the PCAOB’s new standard for audit reports



October 25, 2017

Securities Law Alert

Author(s): Kelly D. Babson, Tevia K. Pollard

This week the SEC approved the PCAOB’s new auditor reporting standard, which makes significant changes to the nature and scope of the auditor’s required disclosures about matters specific to the particular audit.

On October 23, 2017, the Securities and Exchange Commission (SEC) formally approved the new auditor reporting standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, or AS 3101, which the Public Company Accounting Oversight Board (PCAOB) adopted on June 1, 2017. Nixon Peabody’s alert describing the new standard is available here. The new standard, together with related amendments to existing auditing standards, makes significant changes to the nature and scope of the auditor’s required disclosures about matters specific to the particular audit.

The SEC’s approval of the new standard follows a public notice and comment period, which commenced on July 28, 2017. In his statement on the SEC’s approval of the new standard, SEC Chairman Jay Clayton acknowledged the comments the PCAOB received throughout this final comment period, which followed multiple rounds of public solicitation of comment and outreach to various stakeholder groups since the PCAOB initially published a concept release in 2011. Chairman Clayton stated that he is sensitive to the questions commenters raised regarding “whether [critical audit matters (CAMs)] will result in an increase in litigation that does not benefit investors; whether CAMs will convey meaningful information specific to the audit or will instead provide boilerplate; and whether CAMs will chill auditor-audit committee dialogue.” He urged all parties involved in the implementation of the new standard to pay close attention to these issues going forward. Chairman Clayton also noted that the PCAOB intends to monitor the results of implementation, including consideration of any unintended consequences, and that he has directed the SEC staff to assist the PCAOB with its post-implementation review as needed. The statement of the SEC Chairman is available here.

The new standard and related amendments to existing auditing standards will take effect as follows:

  • all provisions other than those related to CAMs will take effect for audits for fiscal years ending on or after December 15, 2017 (i.e., for calendar year public reporting companies, the audit report covering the current fiscal year ending December 31, 2017); and
  • provisions related to CAMs will take effect for audits for fiscal years ending on or after June 30, 2019, for large accelerated filers, and for fiscal years ending on or after December 15, 2020, for all other companies to which the requirements apply.

The SEC’s order granting approval of the new auditor reporting standard is available here.

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