In a change intended to provide investors with a more informative auditor’s report, the Securities and Exchange Commission gave final approval on Monday of a new regulation that requires significant enhancements to certain public company audit reports.
The new auditors’ reporting standards includes requirements by auditors not only to include information on what is called critical audit matters (CAMs), but also to say how long an auditor has been working for a company.
The Public Company Accounting Oversight Board (PCAOB) mooted this proposal back in 2010 after investors commented that they wanted to learn more about how auditors reached their opinions.
Bringing insight to investors
The oversight body engaged in a number of public solicitations of comment and held discussions with various stakeholder groups before reaching the ruling the SEC approved.
SEC chairman, Jay Clayton, in a statement supporting the final ruling said: "CAMs are designed to provide investors and other financial statement users with the auditor’s perspective on matters discussed with the audit committee that relate to material accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment. Investors will benefit from understanding more about how auditors view these matters.”
Benefits to investors outweigh chances of increased litigation
The rule has its dissenters, audit companies worried that it would be onerous and time consuming given the breadth of CAMs and could led to increased litigation as well as how meaningful the information will become or whether it may become boilerplate.
Other pushback from public companies like metal manufacturer, Ball, hinges on what its vice president and controller, Shawn Barker and its chief financial officer, Scott Morrison, wrote in a joint comment to the SEC on the "negative impact on the open dialogue that exists between auditors and audit committees."