Yesterday the Public Company Accounting Oversight Board (PCAOB) proposed a new auditing standard that would retain the pass/fail model auditors currently use in reporting on corporate financial statements, but would require auditors to provide additional information as well. The proposed standard would require the auditor to:

• communicate “critical audit matters” that he/she deems relevant;
• include in auditor's reports information about the auditor's independence, tenure, and evaluation of “other information” outside the financial statements; and
• enhance language currently in auditor's reports that relates to the auditor's responsibility for fraud and notes in the financial statements.

The “other information” that auditors would be required to consider includes select financial data, management discussions, and analysis. Auditors would have to undertake certain procedures in the event that they find a material discrepancy between a company's audited financial statements and this other information.

“The goal of these proposed standards and amendments is to significantly improve the current auditor reporting model by requiring the auditor to communicate specific information about each audit based on audit procedures performed,” says Martin F. Baumann, chief auditor and director of professional standards for the PCAOB. “Communicating critical audit matters in the auditor's report will make the report more informative, thereby increasing its relevance and usefulness to investors and other financial statement users.”

The proposed standard is open for public comment until December 11, 2013.