PCAOB Considers Momentous Changes in Reporting

Source: Accounting Today 

The Public Company Accounting Oversight Board is grappling with two momentous changes. The first would require CPAs to provide more information about the adequacy of financial statements, a so-called “multi-grade” system. The current system requires an opinion solely on whether the financial statements are appropriate. The second change would require individual partners to identify themselves in the auditors’ reports. 

On the first question, some PCAOB advisory committee members say the current system doesn’t distinguish between companies with very good reporting and those that are borderline.  

Some commentators say the current system encourages companies to get away with as much as they can in their financial statements. Others say changing to a more comprehensive report would introduce too much complexity, and cause “information overload” and more “boilerplate” language. 

On the question of personal signatures of partners on audit reports, there is the contention that the signatories would take their responsibilities more seriously. Some say that perhaps the Enron report would have turned out differently if the partner in charge were required to sign it personally. 

Others say that such a requirement would be interpreted as a diminution of the responsibility of the firm (visa vis the responsibility of the individual partners), provides no advantage to investors, and ignores the fact that PCAOB has the right to sanction individual partners. 

For the complete article, see Accounting Today, March 14, 2005, “PCAOB Mulls Reporting Model Reforms,” which can be found at

http://www.webcpa.com/article.cfm?articleid=11135&;pg=acctoday.