FEE commented on the PCAOB Rulemaking Docket Matter No 34

30 September 2011

FEE released its comment letter on the PCAOB Rulemaking Docket Matter No 34: 'Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements and Related Amendments to PCAOB Standards'.

The recent debate regarding auditor communication has highlighted the need to provide the public with more details of what an audit is and more information on audit performance. FEE believes that it is important to consider carefully the arguments put forward and to reflect on which lessons can be learned from the financial crisis, as the debate has shown that the way that auditors communicate is a political issue as well as a technical issue. Even if auditors have been criticised during the financial crisis for not being sufficiently sceptical, audit remains of essential value to society in today’s changing economy as an independent check of the validity of the financial information provided to users in the markets. Undoubtedly, now is the right time to consider whether there is scope for enhancing the role of the audit and of the auditor to maximise their contribution to the world economy.

As the PCAOB will be aware, the IAASB is currently also discussing this topic of improvements to auditor reporting in their recently published Consultation Paper on “Enhancing the Value of Auditor Reporting: Exploring Options for Change”. It would be preferable that a truly global solution for these improvements is found, to the benefits of investors and other users of financial statements and audit reports. Therefore, FEE encourages the PCAOB to cooperate closely with the IAASB when deciding on the improvements that will be introduced.

FEE has only responded to the questions in the PCAOB Concept Release that are relevant from a European or international perspective, and has not expressed views on issues that focus on purely national US matters. Its detailed responses to the relevant questions can be summarised as follows:

1. Changes are welcome and should be introduced to improve the communicative value of audit reports by carefully considering the comments made by various stakeholders of the current audit report being too generic and containing boilerplate language. The aim should be to provide better information, instead of merely providing more information to the users.
2. The key principle is that it is the responsibility of management and those charged with governance of an entity to provide the information on an entity that is required by users. The audit report only accompanies the information provided by the audited entity itself.
3. More company-specific information about the audit could be provided by the auditor, such as information on audit risks. It will be essential to specify clearly which audit risks should be disclosed. Should it be the key audit procedures that have been performed in response to the key business risks of the company or the risks of material misstatements identified by the auditor as part of the risk assessment which might not be related directly to the key business risks of the company?
4. The auditor could provide more assurance outside the current scope of audit. This should be based on a generally-accepted framework and on market requests for such additional assurance.

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