Financial Statements Critical Audit Matters †MyAssignmenthelp.com

Question: Discuss about the Financial Statements Critical Audit Matters. Answer: Introduction: The PCAOB has adopted an auditing standards that makes it compulsory for the auditors to mention areas of high audit risk in the audit report. It needs the auditors to disclose in their audit report such data and facts with regards the details they have communicated or are to communicate to the audit committee that connotes to the important accounts or disclosures and included specifically demanding, prejudiced or intricate audit judgment, known as critical audit matters (CAM). Some of the matter that they are to cover in the audit report are the risks of substance misstatements inclusive of critical risks, the extent of the opinion of the auditor with regards such stances which relate to the financial statements that calls for application of prominent opinion, the character and timing of important abnormal dealings and the degree of audit endeavor and opinion associated to these dealings, the extent of the prejudice while application of the audit procedure to take care of the matter or in examining the outcome of the processes and the kind of audit support and proofs being collected. Therefore due to the said change, even though revenue recognition is considered to be a fraud risk and such risks are considered to be very crucial under the PCAOB standards, yet any concern with regards the revenue recognition that does not include challenging, subjective or complicated auditors opinion, it is not to be defined as CAM under the standard (Weingarten, 2016). However there exists a host of similarities as well as differences between the CAM stated by PCAOB standard and the key audit matters stated by ISAAB. The approach adopted by both of them is somewhat same which has led to the increase of the quality of the audit report thereby ensuring better transparency to the shareholders and also ensuring that the interaction is not one sided during the course of the audit. As per ISAAB, the auditors of the listed entities are compulsorily required to converse KAM to various entities such as the public entities or entities which are a part of a specific industry etc. Whereas the PCAOB confirmed communication of CAM for audits which are performed under the PCAOB standards. KAM is chosen basis the matters which are charged to governance but CAM are to be communicated which conforms to the accounts or disclosures which are crucial to the financial statements and concludes specific challenging, subjective or complicated audit opinion. Thus although t he two terms are similar yet the only difference lies in the fact that CAM is related to the accounts or disclosures that are significant to the financials (IAASB 2017). On analyzing the various changes proposed in the PCAOB standards, it is understood that the said standard will be of great use. The said changes are being introduced as the disclosure of these data in the audited financial statements will help negate the chances that auditors may disclose original data. Further the new standard also wants the auditors to disclose as to since when are they associated with the client as an auditor, this way it would make the investors aware of the length of the association with the client and whether the same would impact upon the opinion stated. Next, the standard also wants them to revise the language of the report and add a line whether due to fraud or error to the narration of the responsibility of an auditor as this would entail to achieve assurance that the financial statements are not misstated and are true in all respects (ey.com., 2017). Last but not the least, the changes proposed in the PCAOB standard also ensures a two way interaction i.e. between the audit committee and the management with regards the CAM before the final report is being published. This ensures better conversation of the issues along with resolution and also transparency as well. The new auditing reporting requirement on audit practice will very much help to improvise the communication of the CAM to the investors (Odoner, King, 2017). The report given by the auditor in most of the cases lack the containment of audit specific data. The auditor seems to know much more about the company and its financial position. The present form of the auditors report is highly incapable in communicating the information unevenness between the investors and auditors. Thereby by including the part i.e. communication of the CAM, the investors, shareholders and others who use the financial statements data will find themselves better informed and hence be able to take better decisions regarding their investments. Lastly, these changes will enable to test the quality of the audit as well along with nurturing the reliability of the financial statements of the organization (PCAOB 2016). The new auditing reporting requirements has a very significant implication on the audit practice. Some are opposing to the introduction of the changes while some are in favor of the same. The biggest impact that the same has had on the auditors is the increased liability and accountability towards the entity whose accounts are being audited. The auditing partner who is engaged in the final conformation of the audit report is also required to disclose his name (Heymans, 2015). Due to the increased pressure imposed by the new standards, the auditors are finding themselves in a confused state of mind wherein one side they are required to disclose all the critical matter after due discussion with the management and on the other hand there level of responsibility is increasing tremendously thus leading them liable for many situation encountered by the company. There escape in case of any fraud being conducted by a company is not as easy as it used to be. Thus although the changes in the P CAOB requires the auditors to disclose many high risk audit matters and issues transparently, but it has in turn also increased their level of liability and accountability towards the investors. References: Ey.com., (2017), PCAOB adopts final standard to significantly change the auditors report, Available at https://www.ey.com/Publication/vwLUAssets/ey-pcaob-adopts-standard-changing-auditors-report/$File/ey-pcaob-adopts-standard-changing-auditors-report.pdf (Accessed 30th September 2017) Heymans,H., (2015), Special Feature: The New Auditors Report, Available at https://www.accountancysa.org.za/wordpress/special-feature-the-new-auditors-report/ (Accessed 30th September 2017) IAASB., (2017), Summary Comparison Between the IAASB and the US PCAOB Standards, Available at https://www.hesabras.com/Content/media/filepool3/2017/8/569.pdf (Accessed 30th September 2017) Odoner,E., King, P., (2017), PCAOB Approves Expanded Auditors Report, Available at https://corpgov.law.harvard.edu/2017/06/18/pcaob-approves-expanded-auditors-report/ (Accessed 30th September 2017) PCAOB., (2016), Proposed Auditing Standard- The Auditors Report On An Audit Of Finncial Statements When The Auditor Expresses An Unqualified Opinion And Related Amendments To PCAOB Standards, Available at file:///C:/Users/E-ZONE/Downloads/pcaobproposal_auditorreport_11may2016.pdf (Accessed 30th September 2017) Weingarten,N., (2016), PCAOB reproposes significant changes to the auditors report, Available at https://www.pwc.com/us/en/cfodirect/publications/in-brief/pcaob-reproposes-significant-changes-auditors-report.html (Accessed 30th September 2017)