Investor’s Protection from Another Financial Crisis Pushed
Auditors have been urged Tuesday to provide investors with more details regarding the financial position of firms, the first step taken by regulators in response to the 2008 financial crisis.
A concept paper issued by the Public Company Accounting Oversight Board (PCAOB) sought to discuss alternatives for changing the auditor’s reporting model. PCAOB also announced that it will convene a public roundtable to discuss the concept release in the third quarter of 2011.
Earlier this year, PCAOB reached out to investors, auditors, preparers of financial statements, audit committee members, and other interested parties, seeking their views on potential changes to the auditor’s report. The staff reported its findings to the board on March 22.
Past reports cited governments as being on the lookout to enhance how auditors play their roles through tighter regulations. For example, the House of Lords Economic Affairs Committee has been investigating the Big Four auditors about their roles in the financial crisis that left many financial institutions injured.
James Doty, PCAOB chairman, said: “The concept release we issue today represents a significant step for investor protection in response to the financial crisis, and a first step toward a holistic consideration of reforms designed to foster the relevance, transparency and reliability of the audit process.”
PCAOB seeks comment until September 30 on alternatives and other matters presented in the concept release regarding the necessary changes for the reporting model of auditors.
Investors largely rely on the auditor’s report for information regarding the audit of the financial statements.
“The auditor is in a unique position to provide relevant and useful information, because of the auditor’s extensive knowledge of the company and as an independent third-party,” said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards.
“The concept release explores ways to expand the auditor’s communication in the auditor’s report about the audit and the company’s financial statements,” he added.
The alternatives proposed in the concept paper include an auditor’s discussion and analysis; required and expanded use of emphasis paragraphs; auditor assurance on other information outside the financial statements; and, clarification of language in the standard auditor’s report.
The paper seeks specific comment on these alternatives to provide investors with more transparency in the audit process and more insight into the company’s financial statements or other information outside the financial statements.
These comments will form the basis for the development of new auditing standards that would supersede the PCAOB’s current standards on the auditors’ report.