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SEC Approves New PCAOB Standard for Auditor's Report

On October 23, 2017, the U.S. Securities and Exchange Commission ("SEC") approved the Public Company Accounting Oversight Board's ("PCAOB") new auditing standard which requires the auditor's report to provide new information for the benefit of investors and other financial statement users.

In addition to continuing to give a pass or fail opinion in the auditor's report, the report must include a discussion of critical audit matters ("CAMs"). CAMs are matters arising from the audit of the financial statements that (i) have been (or are required to be) communicated to the audit committee, (ii) relate to accounts or disclosures that are material to the financial statements, and (iii) involve especially challenging, subjective, or complex auditor judgment. Although not expected, if no CAMs were to be identified in an audit, the auditor's report is required to include a negative affirmation to that effect.

Among other things, the new standard also requires the auditor's report to include statements regarding the auditor's tenure and the requirement that the auditor be independent, as well as changes the organization and format of the auditor's report.

The new requirements will become effective in three phases:

  • New auditor's report format, tenure of the auditor, and other information must be included in audits for fiscal years ending on or after December 15, 2017.

  • Communication of CAMs for audits of large accelerated filers must be included in audits for fiscal years ending on or after June 30, 2019.*

  • Communication of CAMs for audits of all other public companies must be included in audits for fiscal years ending on or after December 15, 2020.*

The disclosure of CAMs may have a significant impact on discussions between auditors and audit committees, but the phase-in period before implementation of the communication of CAMs requirement provides companies with the opportunity to plan how to address these disclosures and create a process with their auditors. For calendar year end companies, the other changes will need to be reflected in the auditor’s report filed with their 2017 Form 10-Ks (or Form 20-Fs) in early 2018.

*Audits of emerging growth companies, brokers and dealers, investment companies other than business development companies, and employee stock purchase, savings, and similar plans do not have to include communication of CAMs. No similar exemption exists for smaller reporting companies or foreign private issuers.

© 2020 Jones Walker LLPNational Law Review, Volume VII, Number 310


About this Author

Alexandra Clark Layfield Corporate Attorney Jones Walker Law Firm

Alexandra Layfield joined Jones Walker's Corporate & Securities Practice Group in 2008. Ms. Layfield's practice is exclusively transactional, concentrating principally on the areas of securities law, mergers and acquisitions, general corporate law and corporate governance matters.

Ms. Layfield's principal area of focus is counseling corporations on corporate governance matters and the related disclosure requirements of the securities laws and trading markets, including reviewing annual, quarterly, and current reports, proxy statements, and...

Elisabeth LeBlanc, comparative law, corporate, securities, New Orleans, Louisiana, Jones Walker,

Elisabeth LeBlanc is an associate in the firm’s Corporate & Securities Practice Group in New Orleans. Elisabeth is a 2016 graduate of the Paul M. Hebert Law Center at Louisiana State University where she received her juris doctor degree and a Diploma in Comparative Law, cum laude. During law school, she served as a Judicial Extern to Judge Fredericka Homberg Wicker at the Louisiana Fifth Circuit Court of Appeal. She was also a Law Clerk at a prominent New Orleans litigation firm. Prior to law school, she received her Bachelor of Arts in Anthropology, cum laude, in 2009 from the University of Florida at Gainesville.