| WASHINGTON, April 3
WASHINGTON, April 3 Some accounting experts are
urging U.S. regulators to embrace a proposal to improve how
auditors communicate their opinions on corporate financial
statements to investors, saying such changes are long overdue.
Floated in August by the Public Company Accounting Oversight
Board, the proposal would allow auditors to say more about their
reviews of a company's finances, beyond just giving the books a
"pass" or "fail" grade. [ID: nL2N0GE0HF]
While the plan would retain today's pass/fail model, it
would for the first time require auditors to provide more
colorful commentary about "critical audit matters" detected in
vetting a company's books, moving beyond "boilerplate" language.
To bolster auditors' independence from corporate managers,
audit firms would also need to disclose how long they have
worked for company clients.
The PCAOB's plan "fixes several glaring shortcomings in the
current model," said Gaylen Hansen, a former chair of the
National Association of State Boards of Accountancy, in prepared
remarks delivered during a two-day roundtable convened in
Washington by the PCAOB this week to get feedback on the plan.
"Today's auditor's reporting standard is akin to a
windowless building lacking visual functionality. We can do
better, and doing it is long overdue," Hansen added.
The PCAOB's proposal, if adopted by the board and ultimately
approved by the U.S. Securities and Exchange Commission, would
mark the biggest changes in the U.S. auditor's report in 70
years. Similar changes were made by UK regulators a few years
The European Union on Thursday approved an even more
sweeping reform. It would stop any listed company from using the
same accountancy firm for more than 20 years, in an effort to
break down what some say are too-cozy relationships between
companies and the "Big Four" accounting firms - KPMG,
PricewaterhouseCoopers,, Deloitte and Ernst &
TERM LIMITS DROPPED
The PCAOB, a body created by Congress to police U.S.
auditors in the wake of accounting scandals at Enron and
Worldcom, recently dropped the idea of potentially imposing
mandatory term limits on accounting firms after fierce lobbying
by the industry.
The proposed changes to the auditor's report would be a less
drastic change. They were debated at the roundtable in
Washington, D.C., and are seen as likelier to win adoption in
the United States, though not until 2015 or later.
Some panelists told the PCAOB they would like to see the
proposal strengthened. David Tweedie, a former chairman of the
International Accounting Standards Board, said the PCAOB might
consider requiring disclosures about other matters, such as
"management judgments and estimates, accounting policies and
practices and the identification of where significant matters
are disclosed in the financial statements."
"Here is a wonderful chance provided by the PCAOB to
demonstrate to the public the worth of an audit," he said in
Still, public companies and others who are involved in
helping prepare financial statements also cautioned the PCAOB to
tread with care. Many panelists at the roundtable this week said
the proposed changes would add new costs and burdens on
companies, and potentially cause misunderstandings by investors
about "critical audit matters" or chill relationships between
auditors and corporate audit committees.
"There will be additional time and expense associated with
interacting with and providing information to the auditors,"
said Blackrock's managing director of global accounting
policy Ann Cavanaugh in prepared remarks at this week's event.
(Reporting by Sarah N. Lynch; Editing by Kevin Drawbaugh and