Locke Lord QuickStudy: Audit Report Revamp Approved by SEC

October 24, 2017

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On October 23, 2017, the SEC approved1 the adoption of AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion2 and related amendments to other auditing standards, each as proposed by the Public Company Accounting Oversight Board. The new standards will require that an auditor provide new information about its audit that is intended to make the auditor’s report more informative for investors.
The new auditor report standards retain the pass/fail opinion of the existing standards but make significant changes to the report, including the following:

  • An auditor is required to include in the auditor’s report a discussion of any critical audit matters (“CAMs”) or state that the auditor determined that there are no CAMs.3 A CAM is a matter that has been (or is required to be) communicated to the audit committee, relates to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment. The audit report must identify any CAM, the principal considerations that led the auditor to conclude the matter is a CAM, describe how the CAM was addressed in the audit, and refer to the relevant financial statement accounts or disclosures.
  • An auditor is also required to make additional disclosures in the auditor’s report that are primarily intended to clarify the auditor’s role and responsibilities and make the report easier to read, including, among other things, the tenure of the auditor. The format and organization of the audit report has also been revised, including requiring the auditor’s opinion to be presented in the first section of the report and adding section titles to guide the reader.

Effective dates:

The new requirements related to CAMs are effective for audits:

  • for large accelerated filers for fiscal years ending on or after June 30, 2019; and
  • for all other companies for fiscal years ending on or after December 15, 2020.
The other new requirements related to report format, auditor tenure, and other information are effective for audits of all companies for fiscal years ending on or after December 15, 2017.


1 See the SEC’s order here.

2 See here.

3 Communication of CAMs in the auditor’s report is not required for audits of emerging growth companies.