Yesterday the Public Company Accounting Oversight Board (PCAOB)proposed a new auditing standard that would retain the pass/fail modelauditors currently use in reporting on corporate financialstatements, but would require auditors to provide additionalinformation as well. The proposed standard would require theauditor to:

• communicate “critical audit matters” that he/she deemsrelevant;
• include in auditor's reports information about the auditor'sindependence, tenure, and evaluation of “other information” outsidethe financial statements; and
• enhance language currently in auditor's reports that relates tothe auditor's responsibility for fraud and notes in the financialstatements.

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

“The goal of these proposed standards and amendments is tosignificantly improve the current auditor reporting model byrequiring the auditor to communicate specific information abouteach audit based on audit procedures performed,” says Martin F.Baumann, chief auditor and director of professional standards forthe PCAOB. “Communicating critical audit matters in the auditor'sreport will make the report more informative, thereby increasingits relevance and usefulness to investors and other financialstatement users.”

The proposed standard is open for public comment until December11, 2013.