The Auditors Come Out from Behind the Curtain

The auditor’s standard report has changed little since the 1940s, but the industry’s regulator, the Public Company Accounting Oversight Board (or PCAOB), has revised a proposed new auditing standard that would significantly change and expand that report, giving investors direct insight into auditors’ concerns and procedures for the first time. The underlying concept of the three-paragraph report format established so long ago has been known as the “pass/fail” model. The auditor basically opines whether the company’s financial statements were prepared in accordance with generally accepted accounting principles, or not. That’s about it. The report doesn’t say what financial statement accounts received the most attention or what audit procedures were performed to support the report’s conclusion. Under the new proposal, that would change.