The SEC has approved the Public Company Accounting Oversight Board's (PCAOB) new standard for audit reports on public company financial statements. The new auditor reporting standard will require more information about the audit with the stated intention of making the auditor’s report more informative and relevant to investors.

The standard includes the communication of critical audit matters, referred to as CAMs, which provide information about matters arising from the audit that required especially challenging, subjective, or complex auditor judgment, and how the auditor responded to those matters.

Communication of CAMs is not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans.

The new standard also makes other changes to the audit report with respect to disclosures regarding auditor tenure, independence, addressees and other enhancements.

CAMs will be required to be included in audit reports for large accelerated files for fiscal years ending on or after June 30, 2019. CAMs will be required to be included in audit reports for other issuers for fiscal years ending on or after December 15, 2020. Auditors may elect to comply with the standard before the effective date. All provisions other than those related to critical audit matters will take effect for audits for fiscal years ending on or after December 15, 2017.

Now that the PCAOB standard has been approved by the SEC, public companies may want to take the following steps:

• Ascertain whether the auditors intend to disclose CAMs in audit reports prior to the required effective time
• Become familiar with the changes to the audit report that will be effective during the upcoming reporting season

We have published a comprehensive analysis of the PCAOB's new standard on the Stinson blog Dodd-Frank.com.