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Release_2013-005_ARM

Release_2013-005_ARM

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Published by: MarketsWiki on Aug 14, 2013
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08/15/2013

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1666 K Street, N.W.Washington, DC 20006Telephone: (202) 207-9100Facsimile: (202) 862-8430www.pcaobus.org
PROPOSED AUDITING STANDARDS –THE AUDITOR'S REPORT ON AN AUDIT OFFINANCIAL STATEMENTS WHEN THE AUDITOR EXPRESSES AN UNQUALIFIEDOPINION;THE AUDITOR'S RESPONSIBILITIESREGARDING OTHER INFORMATION INCERTAIN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS ANDTHE RELATED AUDITOR'S REPORT; AND RELATED AMENDMENTS TO PCAOBSTANDARDS)))))))))))))))PCAOB Release No. 2013-005 August 13, 2013PCAOB RulemakingDocket Matter No. 034Summary: The Public Company Accounting Oversight Board ("PCAOB" or the"Board") is proposing two new auditing standards,
The Auditor's Report onan Audit of Financial Statements When the Auditor Expresses anUnqualified Opinion
, which
 
would supersede portions of AU sec. 508,
Reports on Audited Financial Statements,
and
The Auditor'sResponsibilities Regarding Other Information in Certain DocumentsContaining Audited Financial Statements and the Related Auditor's Report
,which would supersede AU sec. 550,
Other Information in DocumentsContaining Audited Financial Statements.
The Board also is proposingrelated amendments to PCAOB standards.PublicComment: Interested persons may submit written comments to the Board. Suchcomments should be sent to the Office of the Secretary, PCAOB, 1666 KStreet, N.W., Washington, D.C. 20006-2803. Comments also may besubmitted by email to comments@pcaobus.org or through the Board'swebsite at www.pcaobus.org. All comments should refer to PCAOBRulemaking Docket Matter No. 034 in the subject or reference line andshould be received by the Board no later than 5:00 PM (EST) onDecember 11, 2013.BoardContacts: Martin F. Baumann, Chief Auditor (202/207-9192,baumannm@pcaobus.org), Jennifer Rand, Deputy Chief Auditor (202/207-9206, randj@pcaobus.org), Jessica Watts, Associate Chief Auditor (202/207-9376, wattsj@pcaobus.org), Lillian Ceynowa, Associate Chief 
 
PCAOB Release No. 2013-005 August 13, 2013Page 2 Auditor (202/591-4236, ceynowal@pcaobus.org), Elena Bozhkova, Assistant Chief Auditor (202/207-9298, bozhkovae@pcaobus.org) andEkaterina Dizna, Assistant Chief Auditor (202/591-4125,diznae@pcaobus.org).*****
I. Introduction
The auditor's report is the primary means by which the auditor communicateswith investors and other financial statement users information regarding his or her auditof the financial statements. As it exists today, the auditor's report identifies the financialstatements that were audited, describes the nature of an audit, and presents theauditor's opinion as to whether the financial statements present fairly, in all materialrespects, the financial position, results of operations, and cash flows of the company inconformity with the applicable financial reporting framework. This type of auditor's reporthas been commonly described as a pass/fail model because the auditor opines onwhether the financial statements are fairly presented (pass) or not (fail).
1/
 The auditor's report in the United States has changed very little since the 1940s.The existing pass/fail model is thought by many to be useful because it provides a clear indication of whether the financial statements are presented fairly.
2/
However, while theexisting auditor's report provides important information about an audit in general, it doesnot provide information that is specific to a particular audit. Academic research suggests that investors and other financial statement usersrefer to the existing auditor's report only to determine whether the opinion is unqualified
1/
If the financial statements are not fairly presented, the standards of thePCAOB provide that an auditor may issue a qualified opinion, adverse opinion, or disclaimer of opinion.
2/
See paragraph (c) of U.S. Securities and Exchange Commission ("SEC")Rule 2-02 of Regulation S-X, 17 C.F.R. § 210.2-02. SEC rules require the accountant toclearly express an opinion on the audited financial statements that are required to befiled as part of registration statements under the Securities Act
 
of 1933 ("Securities Act")and Section 12 of the
 
Securities Exchange Act
 
of 1934 ("Exchange Act"), annual or other reports under Sections 13 and 15(d) of the Exchange Act, proxy and informationstatements under Section 14 of the Exchange Act, and registration statements andshareholder reports under the Investment Company Act of 1940. See also paragraph(a) of SEC Rule 1-01 of Regulation S-X, 17 C.F.R. § 210.1-01.
 
PCAOB Release No. 2013-005 August 13, 2013Page 3because it does not provide any other informational value about the particular audit.
3/
 During the Board's outreach activities over the last three years, many investors haveexpressed dissatisfaction that the content of the existing auditor's report provides little, if any, information specific to the audit of the company's financial statements to investorsor other financial statement users. During a financial statement audit, auditors obtainand evaluate important information concerning the company, the company'senvironment, and the preparation of the company's financial statements. Many investorshave indicated that they would benefit from additional auditor reporting because they donot have access to, or may not be aware of, much of this information. Additionally, manyinvestors indicated that auditors have unique and relevant insight based on their auditsand that auditors should provide information about their insights in the auditor's report tomake the reports more relevant and useful.
4/
 Several commissions examined both the auditor's responsibilities and the form of the auditor's report in the 1970s and 1980s.
5/
These commissions made severalrecommendations to change the auditor's report; however, only a limited number of changes were made in response to these recommendations.
6/
In 2008, the U.S.Department of the Treasury's Advisory Committee on the Auditing Profession ("ACAP")recommended that the PCAOB undertake a standard-setting initiative to consider 
3/
See, e.g., Glen L. Gray, Jerry L. Turner, Paul J. Coram, and Theodore J.Mock,
Perceptions and Misperceptions Regarding the Unqualified Auditor's Report byFinancial Statement Preparers, Users, and Auditors
, 25 Accounting Horizons 659, 675-676 (2011); and Theodore J. Mock, Jean Bedard, Paul J. Coram, Shawn M. Davis,Reza Espahbodi, and Rick C. Warne,
The Audit Reporting Model: Current ResearchSynthesis and Implications
, 32 Auditing 323, 323-351 (2013).
4/
 
See survey,
Improving the Auditor's Report
, which was presented by theworking group of the IAG on Auditor's Report and The Role of the Auditor, (March 16,2011), available at http://pcaobus.org/News/Events/Pages/03162011_IAGMeeting.aspx.
 
5/
For example, in 1978, the Commission on the Auditors' Responsibilities(known as the "Cohen Commission") and in 1987, the National Commission onFraudulent Financial Reporting (known as the "Treadway Commission") recommendedchanges to the auditor's report.
6/
The changes expanded the discussion of attributes of an audit andmanagement's responsibility. See Marshall A. Geiger,
Setting the Standard for the New Auditor's Report: An Analysis of Attempts to Influence the Auditing Standards Board
, 1(1993), 38.

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