Under the proposal, the audit report would retain the traditional pass/fail model but would also include critical audit matters and a standardized statement about the role and responsibility of the auditor—including its duty to be independent—and the length of employment of an auditor at a company.

A critical audit matter is defined by the PCAOB as “any matter that was communicated or required to be communicated to the audit committee and that: relates to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment.”

This is the second time the PCAOB has formally proposed making significant changes to the standard auditor's report. The latest recommendation, which was released last May, is less expansive than the 2013 proposal. The recent guidance indicates that critical audit matters are limited to what’s communicated to the audit committee—adding a materiality component to the definition of a critical audit matter, as well as narrowing the definition to only those matters that involved especially challenging, subjective or complex auditor judgment, and revising the related documentation requirement. It does, however, expand the communication requirement to direct the auditor in describing how the critical audit matter was addressed in the audit.

The NYSSCPA was not a fan of the 2013 proposal and didn’t find the second one much of an improvement. In a comment letter written in response to the most recent proposal, the Society said the inclusion of critical audit matters would serve only to confuse investors and dilute the message of a pass/fail test. It also raised concerns that it would increase litigation risk for CPA firms.