Reuters: Regulatory News: RPT-U.S. watchdog to unveil plan to overhaul audit reports

Reuters: Regulatory News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

Refresh your vocabulary. Learn a new word everyday by subscribing to Word of the Day. A great tool if you're studying for the GRE, GMAT or LSAT, or simply want to enhance your lexicon. From our sponsors

RPT-U.S. watchdog to unveil plan to overhaul audit reports Aug 13th 2013, 10:59 By Sarah N. Lynch WASHINGTON | Tue Aug 13, 2013 6:59am EDT WASHINGTON Aug 13 (Reuters) - A U.S. regulator is expected to unveil a controversial proposal on Tuesday that would require auditors to reveal more details about the publicly traded companies whose books they examine, in a move to arm investors with more information. The Public Company Accounting Oversight Board says that its proposal, if ultimately adopted, would mark the most significant overhaul to the audit report since the 1940s. For the past 70 years, auditors have adhered to a standard three-paragraph audit opinion attached to company annual reports that essentially gives the company's books either a passing or a failing grade. The reports say whether the financial statements fairly present the company's financial condition and whether they followed generally accepted accounting principles (GAAP). Investor groups, as well as some of the PCAOB's own board members, have in recent years criticized that model as nothing more than a rubber stamp that fails to give investors enough insight into the auditor's findings, including any concerns that may have arisen during the audit. It is unclear exactly what the PCAOB's audit report proposal will contain. Public companies and auditors say that management, and not auditors, should be required to disclose any additional information. They have also argued that information disclosed by auditors could be taken out of context, conflict with disclosures by management or raise confidentiality concerns. But Lynn Turner, a former chief accountant at the U.S. Securities and Exchange Commission, said the PCAOB should seize the opportunity to end what he sees as an "abusive practice." "For too long, auditors have been found to have known about serious problems with financial reports they failed to tell investors about, instead choosing to protect management," Turner said. The PCAOB was created by the 2002 Sarbanes-Oxley Act as a regulatory response to the accounting scandals that led to the downfall of companies such as Enron, Worldcom and Tyco. It is tasked with inspecting auditors, establishing audit standards and taking disciplinary actions against lawbreakers. Much of its time is spent overseeing the Big Four corporate auditing firms - PricewaterhouseCoopers, Ernst & Young , KPMG and Deloitte. Under the leadership of its current chairman Jim Doty, the PCAOB has explored more aggressive reforms in response to the 2007-2009 financial crisis, in which regulators say many auditors did not always conduct good audits. Many of the reforms being considered, from the audit report changes to possibly imposing term limits on audit firms, have generated controversy in the accounting profession. The issue of audit firm rotation has become especially contentious. Last month, the U.S. House of Representatives overwhelmingly voted to ban the PCAOB from forcing companies to periodically switch auditors, in a rare show of bipartisan unity. The measure, however, is largely symbolic because it is not expected to pass the Senate. EXPANDED ROLE The PCAOB first started exploring enhancing audit reports in 2011, when it began seeking comments on the concept. Reform advocates suggested that auditors should provide investors with additional assurances about information outside of financial statements, such as insights on earnings releases and the management's discussion section of the annual report. Another potential reform is the inclusion of an "auditor's discussion and analysis" that would detail how the audit was conducted and what the auditors thought of the company's accounting policies. But auditors, as well as many public companies, have expressed skepticism about this idea. Auditors have said it should be up to company management to relay additional details to investors. "Such a change will likely result in unnecessary challenges with respect to aspects of the audit such as confidentiality, independence and auditor-management-audit committee communications," wrote Deloitte & Touche in a September 2011 comment letter. Companies themselves have also questioned whether making changes would add value for investors. "We do not believe the auditor's role should be expanded to provide assurances on matters in addition to the financial statements," wrote Chevron Corp's vice president and comptroller, Matthew Foehr, in a September 2011 comment letter to the PCAOB. "The current scope of the auditor's role is adequate and functioning appropriately." If the PCAOB garners enough votes on Tuesday morning from board members, the proposal will be issued for public comment. A second vote would be needed to approve a final rule. Even then, the SEC would still ultimately need to sign off before any PCAOB rule could go into effect, as is standard procedure. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions