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Since some entities require audit reports under both PCAOB and IAASB standards, it is important that there is consistency in what needs to be included in the auditor’s reports especially around the area of “critical audit matters” (CAM) and “key audit matters” (KAM). It would not assist users if the terminology, the definitions in the standards covering this area and the requirements as to the determination of and content of such reporting could result in the auditor reporting either more or even different “matters” under the different standards.
In the EU, there is currently a discussion about the reform of the auditor-related EU legislation. The projects on auditor reporting that are currently being addressed by the PCAOB, the IAASB and other bodies are of the utmost importance as they will also inform and influence the European debate.
FEE supports the EC’s proposals to enhance the auditor’s public communication for public-interest entities (PIEs), especially on:
These proposals have, at the time of writing this letter, reached the final stage of the political discussion, the so-called Trilogue, where the EC, the European Parliament and the Council – representing the Member States – have to agree on a consensual text for final legislation. FEE believes that it is important that the PCAOB, IAASB and EC proposals converge together and are consistent.
FEE notes the circumstances that underpin significant differences between the proposed IAASB approach and that of the PCAOB, which is specific to defined national circumstances (including e.g. the separate project on naming the engagement partner). Nevertheless, FEE would, once again, recommend convergence to the maximum extent possible with ISAs issued by the IAASB in due course, in order to avoid unnecessary additional differences between the two sets of standards.
It is not just those auditors who may need to apply both sets of standards who would be confused by such differences, but also – and more importantly – investors familiar with capital markets outside the US. For example, considerable confusion may result from the fact that the PCAOB proposals do not mention significant risks in regard to determining CAM (risks only mentioned in the Paragraph 9 (e)), whereas the IAASB’s approach essentially centers on these. Another example is the emphasis by the PCAOB on the relevance of “posed the most difficulty […] in the audit”, which is not a prominent feature of the IAASB’s proposals.