The US markets regulator has approved new audit rules that will increase the level of information provided by auditors about the work they’ve undertaken.
Communication of “critical audit matters” (CAMs) and disclosure of auditor tenure have been enshrined into regulation after approval by the Securities and Exchange Commission (SEC).
The new rules were proposed by US accounting watchdog the Public Company Accounting Oversight Board (PCAOB), and come after a seven-year project to make auditor reports more detailed and informative. Three rounds of public consultation took place during the period.
“I strongly support the objective of the rule to provide investors with meaningful insights into the audit from the auditor,” said SEC chairman Jay Clayton. “CAMs are designed to provide investors and other financial statement users with the auditor’s perspective on matters discussed with the audit committee that relate to material accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment.
“Investors will benefit from understanding more about how auditors view these matters.”
Clayton added that he would be “disappointed” if the increased communication is leveraged to build “frivolous” litigation and, in turn, shuts down discussions between auditors and audit committees.
Audit rules regarding tenure and communication have changed dramatically in Europe in recent years. UK and EU regulations force auditors into mandatory tendering alongside a maximum tenure. Audit reports are also more detailed, with the provision of information on “key audit matters” that require the most auditor attention.
The PCAOB is also currently consulting on implementing a more robust regime, where an organisation’s lead audit firm relies on other auditors to undertake some of the work. It wants the lead auditor to apply a more risk-based supervisory approach to testing the strength of other auditors’ work.