Auditor’s Reports: PCAOB Adopts New Auditor Reporting Standard and Other Amendments Relating to the Auditor’s Report

Sullivan & Cromwell LLP - June 5, 2017

The Public Company Accounting Oversight Board has adopted Auditing Standard No. 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and related amendments to its auditing standards that are intended to make the auditor’s report more informative and relevant to investors and other financial statement users by requiring new information about the audit.  Most notably, the new standard, which was adopted substantially in the form reproposed in May 2016, adds a requirement for the auditor to identify and discuss, in the audit report, “critical audit matters” that were addressed in the audit.  The PCAOB anticipates that, subject to Securities and Exchange Commission approval, the new standard will take effect (1) with respect to critical audit matters, for audits for fiscal years ending on or after June 30, 2019, for large accelerated filers; and for fiscal years ending on or after December 15, 2020, for all other covered companies, and (2) with respect to all other provisions, for audits for fiscal years ending on or after December 15, 2017.  SEC-reporting companies and their audit committees should initiate a dialogue with their auditors to understand how their auditors expect to approach critical audit matters and should consider whether additional company disclosure may be necessary or desirable in light of the new standard, including prior to the effective date for disclosure of critical audit matters in auditor’s reports.