scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2016-003, Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards

2016 ◽  
Vol 11 (1) ◽  
pp. C26-C40 ◽  
Author(s):  
Marcus M. Doxey ◽  
Stephen H. Fuller ◽  
Marshall A. Geiger ◽  
Willie E. Gist ◽  
Karl E. Hackenbrack ◽  
...  
Keyword(s):  
Financial Statements ◽  
Auditor Independence ◽  
Data Availability ◽  
Financial Statement ◽  
Specific Information ◽  
Reporting Standard ◽  
The Public ◽  
Auditor Tenure ◽  
Public Company ◽  
Auditor Reporting

SUMMARY On May 11, 2016 the Public Company Accounting Oversight Board (PCAOB) issued a request for comment on Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, a reproposal of its August 2013 proposed auditor reporting standard. The reproposal retains the pass/fail model of the existing auditor's report while seeking to enhance the form and content of the report. The reproposal solicited public comment on the following significant changes to the existing auditor's report: (1) add a description of “critical audit matters” that provides audit-specific information about especially challenging, subjective, or complex aspects of the audit as they relate to the relevant financial statement accounts and disclosures, (2) add a statement about auditor independence and the phrase “whether due to error or fraud” when describing the auditor's responsibilities to obtain reasonable assurance about whether the financial statements are free of material misstatements, (3) add a statement related to auditor tenure, and (4) standardize the form of the auditor's report, requiring the opinion be the first section of the auditor's report and requiring section titles to guide the reader. The comment period ended on August 15, 2016. This commentary summarizes the participating committee members' views on the alternatives presented in the request for comment. Data Availability: The concept release, proposed and reproposed rules, and supplemental information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket034.aspx

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 34: PCAOB Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements.

2011 ◽  
Vol 5 (2) ◽  
pp. C1-C14 ◽  
Author(s):  
Joseph F Brazel ◽  
Paul Caster ◽  
Shawn Davis ◽  
Steven M Glover ◽  
Diane J Janvrin ◽  
...  
Keyword(s):  
Audit Quality ◽  
Exposure Period ◽  
Financial Statements ◽  
Data Availability ◽  
Financial Statement ◽  
The Public ◽  
Additional Information ◽  
Public Company ◽  
Auditing Standards ◽  
Auditor Reporting

SUMMARY Recently, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on the content and form of reports on audited financial statements. The objective of the concept release was to discuss several alternatives for changing the auditor's reporting model that could increase its transparency and relevance to financial statement users, while not compromising audit quality. To that end, the alternatives included (1) a supplement to the auditor's report, in which the auditor would be required to provide additional information about the audit and the company's financial statements (an “Auditor's Discussion and Analysis”), (2) required and expanded use of emphasis paragraphs in the auditor's report, (3) auditor reporting on information outside the financial statements, and (4) clarification of certain language in the auditor's report. The PCAOB provided for a 102-day exposure period (from June 21 to September 30, 2011) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements. Data Availability: Information about and access to the release is available at: http://pcaobus.org/Rules/Rulemaking/Docket034/Concept_Release.pdf

Response of a Subgroup of the PCAOB's Investor Advisory Group to the PCAOB's Concept Release Concerning Reports on Audited Financial Statements and Related Amendments to PCAOB Standards

2011 ◽  
Vol 5 (2) ◽  
pp. C21-C50 ◽  
Author(s):  
Kelvin Blake ◽  
Joseph V. Carcello ◽  
Norman J. Harrison ◽  
Michael J. Head ◽  
Barbara E. Roper ◽  
...  
Keyword(s):  
Financial Statements ◽  
Capital Allocation ◽  
Financial Statement ◽  
Advisory Group ◽  
Audit Report ◽  
Audit Risk ◽  
The Public ◽  
Public Company ◽  
Risk Areas

SUMMARY Recently, the Public Company Accounting Oversight Board (PCAOB) released a concept release concerning possible revisions to PCAOB standards related to reports on audited financial statements and related amendments to PCAOB standards. The comment letter below, written by a subgroup of the PCAOB's Investor Advisory Group, was recently submitted to the PCAOB in response to the Board's concept release. The subgroup believes that the four most important changes to the audit report would require the auditor to: (1) discuss the auditor's assessment of the estimates and judgments made by management in preparing the financial statements and how the auditor arrived at that assessment, (2) disclose areas of high financial statement and audit risk and how the auditor addressed these risk areas, (3) discuss unusual transactions, restatements, and other significant changes in the financial statements (including the notes), and (4) discuss the quality, not just the acceptability, of the issuer's accounting practices and policies. They further assert that the disclosure of this information will improve investors' ability to make informed buy/sell decisions, which should result in higher returns to investors and improved capital allocation within society.

scholarly journals Does the Addition of Explicit Clarification of Auditor Independence Statement to the Auditor’s Report Matter to Equity Analysts?

2019 ◽  
Vol 8 (2) ◽  
pp. 156
Author(s):  
Xia Zhang ◽  
Kwadwo Ofori-Mensah
Keyword(s):  
Financial Reporting ◽  
Relevant Information ◽  
Auditor Independence ◽  
Research Practice ◽  
Stock Recommendations ◽  
Equity Analysts ◽  
The Public ◽  
Public Company ◽  
Auditor Reporting

The Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard to enhance the relevance and usefulness of the auditor’s report. One of the changes introduced in the new reporting model is the addition of a statement that explicitly clarifies the auditor’s independence (AS 3101.09.g). We administer a survey to investigate whether explicitly clarifying the auditor’s independence in the auditor’s report affects equity analysts’ perceptions of auditor independence, perceptions of financial reporting reliability, and their judgment when it comes to making stock recommendations to clients. A total of 123 equity analysts are recruited via Qualtrics for the study. The findings of the survey provide evidence that corroborates the position of the PCAOB that explicit clarification of auditor independence provides relevant information useful to public users such as equity analysts. Our study is the first to evaluate equity analysts’ perceptions about auditor independence using the new PCAOB auditor reporting model regarding the explicit clarification of auditor independence in the auditor’s report. Our study contributes to research, practice, and policy. 

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

2012 ◽  
Vol 6 (1) ◽  
pp. C15-C27 ◽  
Author(s):  
Keith L. Jones ◽  
Jagadison K. Aier ◽  
Duane M. Brandon ◽  
Tina D. Carpenter ◽  
Lisa M. Gaynor ◽  
...  
Keyword(s):  
Exposure Period ◽  
Auditor Independence ◽  
Data Availability ◽  
Professional Skepticism ◽  
Audit Firm ◽  
The Public ◽  
Public Comment ◽  
Public Company ◽  
Auditing Standards ◽  
Mandatory Audit Firm Rotation

SUMMARY In August 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on means to enhance auditor independence, objectivity, and professional skepticism. The Concept Release sought comments on and explores in detail the possibility of mandatory audit firm rotation. The PCAOB provided for a 121-day exposure period (from August 16 to December 14, 2011) for interested parties to examine and provide comments on the concept release. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below (dated December 13, 2011) to the PCAOB on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation. Data Availability: Information about and access to the release are available at: http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf

scholarly journals Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

2015 ◽  
Vol 9 (1) ◽  
pp. A13-A27 ◽  
Author(s):  
William J. Read
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Audit Failure ◽  
The Public ◽  
Going Concern ◽  
Audit Firms ◽  
Public Company ◽  
Reporting Decisions ◽  
Auditor Fees

SUMMARY The recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms. Data Availability: Publicly available from sources identified in the paper.

A Reexamination of Audit Fees for Initial Audit Engagements in the Post-SOX Period

2013 ◽  
Vol 33 (2) ◽  
pp. 59-78 ◽  
Author(s):  
Rosemond Desir ◽  
Jeffrey R. Casterella ◽  
Julia Kokina
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Sample Period ◽  
Accounting Firms ◽  
The Public ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Public Company ◽  
Client Relationships

SUMMARY: On August 16, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release seeking comments on ways to enhance auditor independence. The Board notes that higher failure rates in new audit engagements might be linked to unrealistic pricing. The Board's concern is that a new auditor might be more susceptible to management pressure if initial-year audit fees are set artificially low. Prior to the Sarbanes-Oxley Act (SOX) of 2002, empirical evidence shows that auditors discounted their initial-year audit fees. This practice, known as lowballing, was expected to decrease significantly after the enactment of SOX. Indeed, findings in Huang, Raghunandan, and Rama (2009) seem to confirm that Big 4 auditors charged a fee premium on new auditor-client relationships in 2006. However, it is not clear if more recent post-SOX initial-year audits are free of lowballing. We investigate whether lowballing exists in new auditor-client relationships in an “extended” post-SOX environment for the years 2007 to 2010. Our results suggest that both Big 4 and non-Big 4 accounting firms discounted their initial-year audit fees during our sample period (2007–2010). These findings should be of interest to the PCAOB as it searches for ways to bolster auditor independence. Data Availability: Available from public sources.

Do Quarterly and Annual Financial Statements Reflect Similar Financial Statement Error in the Post-SOX Era?

2021 ◽  
Vol 6 (1) ◽  
pp. 1-31
Author(s):  
Erik S. Boyle ◽  
Melissa F. Lewis-Western ◽  
Timothy A. Seidel
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Data Availability ◽  
Financial Statement ◽  
Annual Reports ◽  
Fiscal Year ◽  
High Quality ◽  
Financial Reports ◽  
Quality Reporting ◽  
Public Company

ABSTRACT The U.S. has invested substantial resources into the regulation and oversight of public-company financial reporting. While these investments should incentivize high-quality reporting among quarterly and annual financial statements, the sharp rise in public company auditor oversight may disproportionately benefit annual reports given the fiscal year-centric nature of audits. We compare the within company-year difference in financial statement error between quarterly and annual financial reports and examine how any difference changed following SOX. We find that pre-SOX error is lower for audited financial statements than for reviewed financial statements and that this difference increases following SOX. Additional tests suggest that elevated auditor oversight, rather than managerial incentives, is the impetus for the change. Despite regulatory investment designed to incentivize the production of high-quality quarterly and annual financial statements, the post-SOX difference in error between quarterly and annual financial statements appears to have increased. Data Availability: Data are available from public sources cited in the text. JEL Classifications: M41; M42.

scholarly journals The Standard Auditors Report: Preparer, User, And Student Reactions To The PCAOB Concept Release

2012 ◽  
Vol 16 (3) ◽  
pp. 113-124 ◽  
Author(s):  
Don E. Giacomino ◽  
Michael D. Akers
Keyword(s):  
Financial Statements ◽  
Financial Statement ◽  
Professional Organizations ◽  
Audit Report ◽  
Short History ◽  
The Public ◽  
Public Company ◽  
Comment Letters ◽  
Student Reactions

Concerns about the usefulness of the Standard Audit Report (SAR) have been expressed by investors and other users of corporate financial statement for several decades. During 2011 the Public Company Accounting Oversight Board (PCAOB) reacted to those concerns by issuing Concept Release on Possible Revisions to the PCAOB Standards Related to PCAOB Standards (Release). This article provides a description of the SAR, a short history (timetable) of the pressures (surveys) to improve the SAR and events that have led to the eventual Release by the PCAOB. Feedback (comment letters and surveys) from professionals and professional organizations regarding the Release are examined and discussed. Accounting and finance majors, future preparers and users of the financial statements, were surveyed to determine both their reactions to the PCAOBs SAR and whether their reactions were different than practitioners. This article concludes with an analysis of the results and implications for audit practice and education.

Does Recent Academic Research Support Changes to Audit Reporting Standards?

2016 ◽  
Vol 30 (2) ◽  
pp. 255-275 ◽  
Author(s):  
Jean Bédard ◽  
Paul Coram ◽  
Reza Espahbodi ◽  
Theodore J. Mock
Keyword(s):  
Financial Reporting ◽  
Academic Research ◽  
Financial Statements ◽  
Future Research ◽  
Research Support ◽  
The Public ◽  
Market Participants ◽  
Information Gap ◽  
Public Company ◽  
Reporting Process

SYNOPSIS The Public Company Accounting Oversight Board (PCAOB), the International Auditing and Assurance Standards Board (IAASB), and the U.K. Financial Reporting Council (FRC) have proposed or approved standards that significantly change the independent auditor's report. These initiatives require the auditor to make additional disclosures intended to close the information gap; that is, the gap between the information users desire and the information available through the audited financial statements, other corporate disclosures, and the auditor's report. They are also intended to improve the relevancy of the auditor's report. We augment prior academic research by providing standard setters with an updated synthesis of relevant research. More importantly, we provide an assessment of whether the changes are likely to close the information gap, which is important to financial market participants and other stakeholders in the audit reporting process. Also, we identify areas where there seems to be a lack of sufficient research. These results are of interest to all stakeholders in the audit reporting process, as the changes to the auditor's report are fundamental. Additionally, our summaries of research on the auditor's report highlight where there is limited research or inconsistent results, which will help academics identify important opportunities for future research.

Additional Evidence on Audit Report Lag

2001 ◽  
Vol 20 (1) ◽  
pp. 137-146 ◽  
Author(s):  
W. Robert Knechel ◽  
Jeff L. Payne
Keyword(s):  
Earnings Quality ◽  
Financial Statements ◽  
Financial Statement ◽  
Fiscal Year ◽  
Sources Of Information ◽  
Audit Report ◽  
The Public ◽  
Time Period ◽  
Audit Team ◽  
Available Information

The process for providing accounting information to the public has not changed much in the last century even though the extent of disclosure has increased signifi-cantly. Sundem et al. (1996) suggest that the primary benefit of audited financial statements may not be decision usefulness but the discipline imposed by timely confirmation of previously available information. In general, the value of information from the audited financial statement will decline as the audit report lag (the time period between a company's fiscal year end and the date of the audit report) increases since competitively oriented users may obtain substitute sources of information. Furthermore, the literature on earnings quality and earnings management suggests that unexpected reporting delays may be associated with lower quality information. The purpose of this paper is to extend our understanding about the determinants of audit report lag using a proprietary database containing 226 audit engagements from an international public accounting firm. We examine three previously uninvestigated audit firm factors that potentially influence audit report lag and are controllable by the auditor: (1) incremental audit effort (e.g., hours), (2) the resource allocation of audit team effort measured by rank (partner, manager, or staff), and (3) the provision of nonaudit services (MAS and tax). The results indicate that incremental audit effort, the presence of contentious tax issues, and the use of less experienced audit staff are positively correlated with audit report lag. Further, audit report lag is decreased by the potential synergistic relationship between MAS and audit services.

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