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Financial Reporting and the Law

The PCAOB’s Chief Auditor issued a new standard-setting agenda on September 30 (the Updated Agenda), which notes the following future requests for comments, but no substantive adoptions, between October 2014 and March 2015.

Issuance of a Staff Consultation Paper on the Going Concern Auditing Standard

The existing auditing standard requires auditors to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time, which the auditing literature defines as a period of up to one year after the date that financial statements were audited. The auditor’s report must include an explanatory paragraph if the auditor concludes that there is substantial doubt. The auditor must evaluate the adequacy of disclosures in the financial statements regarding the uncertainty about the entity’s ability to continue as a going concern, even if the auditor concludes that substantial doubt does not exist.

The Updated Agenda states that the staff will issue a staff consultation paper to seek comment on “potential approaches to improving the performance and reporting requirements” in the existing standard, taking into account the FASB’s new going concern accounting standard, comments from the PCAOB’s two advisory committees, and academic research. The Updated Agenda notes that the staff is also monitoring standard setting related to this area by other standard setters.

The PCAOB staff noted in slides that it provided to the Standing Advisory Committee for its June meeting the following issues and alternative approaches:

  • Issues
    • Less disclosure under the FASB standard
    • Lack of consensus on whether there should be an “earlier warning about going concern uncertainties than current practice” or an alignment of auditing and accounting standards in the area
  • Alternative approaches
    • Retain auditing standard
    • Conform auditing standard to FASB standard
    • Adopt a new auditor reporting threshold
    • Adopt one of the preceding alternatives and require an emphasis paragraph in certain circumstances

Reproposal of an Auditor’s Reporting Model

The 2013 proposal would revise the auditor’s report to discuss, among other things, critical audit matters and the auditor’s responsibilities for, and the results of, the auditor’s evaluation of information outside the financial statements.

The Updated Agenda states that the staff is drafting a reproposal based on its analysis of comments, including those expressed at a public meeting in April.

Issuance of a Supplemental Request for Comment on the Transparency Proposal

The 2013 proposal, which was a reproposal, would require the auditor’s report to disclose (1) the name of the engagement partner and (2) the names, locations, and extent of other audit participants’ involvement.

The Updated Agenda states that “[t]he staff is drafting for the Board’s consideration a supplemental request for comment that takes into account comments received on the reproposal, including comments related to liability and an alternative location for the disclosure.”