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Chief Accountant Backs PCAOB’s Plan to Change Audit Report

November 11, 2013

As the PCAOB ponders the biggest change to the auditor’s report in more than 70 years, it has gained the support of SEC Chief Accountant Paul Beswick, who said he believes investors would find value in the change. The proposal, released in August, would overhaul the pass/fail audit report model and also require auditors to discuss “critical audit matters,” such as the issues they believed were the most difficult to assess.

SEC Chief Accountant Paul Beswick lent support on November 7, 2013, to a PCAOB proposal to make a major change to the auditor’s report for the first time in more than 70 years.

“The bigger picture here is this is an area where investors are almost unanimous in terms of wanting to see changes,” Beswick said at a Practicing Law Institute conference in New York.

Speaking on a panel with PCAOB Chairman James Doty, Beswick said having more clarity about what a business’s auditors believe are the most pressing issues facing the company would be valuable information for investors.

“It’s been 70 years,” Beswick said. “This would be a good place to maybe make some changes.”

The PCAOB in August issued Release No. 2013-005, Proposed Auditing Standards on the Auditor’s Report and The Auditor’s Responsibilities Regarding Other Information and Related Amendments, which would revamp the current, bare-bones pass/fail audit report model and require auditors to also communicate what they determine to be the “critical audit matters,” including the issues they believed were the most difficult and complex to assess.

The ideas is to give investors and analysts better insight into the financial health of a company. After the 2008 financial crisis, investors complained about companies that received clean audit reports just months or weeks before they failed, or required government assistance to stay afloat.

Doty said he envisioned the proposal allowing auditors to speak candidly and report on the “areas that keep the auditors up at night.”

“They are not everything the auditor considered and had to worry about; they are the most critical matters,” he said. “We think it’s rare in a company of any size that there would be no critical audit matters.”

The comment deadline is December 11. Doty said he predicted that because of the controversy surrounding the proposal—many businesses and audit firms are resisting the changes—he expected at least one more re-proposal.

“This is a foundational project,” Doty said. “The reform or change to the auditor’s reporting model for the first time in 70 years is not something to be taken lightly.”