New PCAOB Auditing Standard Coming to CPA Exam

pcaob auditing standard

As authoritative accounting and auditing pronouncements are amended, the CPA Exam adapts to those amendments. These changes can influence your CPA Exam schedule. Gleim CPA is here to update you with the latest pronouncement news.

The AICPA recently addressed a new PCAOB auditing standard, so keep reading to learn more about the standard, its testing eligibility date, and the exam section it affects.

Contents

  1. New PCAOB Auditing Standard
  2. Additional Changes to the PCAOB Auditing Report
  3. PCAOB and AICPA Reporting Standard Differences
  4. Testing on the PCAOB Auditing Report
  5. CPA Exam Scheduling Strategy
  6. AUD CPA Exam Review

New PCAOB Auditing Standard

Quick recap for those who don’t know: The AICPA’s Auditing Standards Board sets auditing standards for nonissuers (private entities) while the Public Company Accounting Oversight Board (PCAOB) sets auditing standards for issuers (public companies).

In June 2017, the PCAOB adopted a new reporting standard, and while you don’t have to dedicate much brain space to remembering the number and name of the standard, you should know that this new standard intends to provide financial statement users with a more relevant and informative report. The PCAOB reporting standard should now be more helpful because it addresses topics like critical audit matters (CAMs) and how long the auditor has been auditing the client.

The CPA Exam will begin testing all the new provisions to the standard except CAMs in July 2018. The exam will start testing provisions related to CAMs in July 2019.

Check out this table that summarizes the updates to the PCAOB auditing standard.

PCAOB Auditing Standard

Number

AS 3101

Name

The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion

Date Effective for Audits of Issuers

Fiscal years ending on or after Dec. 15, 2017 (except for the requirements related to critical audit matters to be required later)

Section Headings

“Opinion on the Financial Statements”

“Basis for Opinion”

Opinion

Placed in the first section of the report

Sentence Update

“Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.”

Signature Block

Includes the year that the auditor began auditing the client

Critical Audit Matters

New section in the audit report to record any critical audit matters noted in the audit

Additional Changes to the PCAOB Auditing Report

As you can see in the table, one notable change to the PCAOB report is the requirement to include any critical matters in the audit report in a section called “Critical Audit Matters” (or CAMs). CAMs are matters that

  • Were communicated or required to be communicated to the audit committee
  • Relate to accounts or disclosures that are material to the financial statements
  • Involved especially challenging, subjective, or complex judgments

To reiterate, the CPA Exam will begin testing this new PCAOB requirement in July 2019. The decision to include an item as a CAM is a judgment call, so the exam probably won’t make you determine whether an issue should be a CAM. However, the exam may test you on the definition of CAMs and on how you would disclose CAMs in the audit report.

Before CAMs appear on the CPA Exam, Gleim will update our course with everything you need to know about them.

PCAOB and AICPA Reporting Standard Differences

Essentially, the AICPA and PCAOB mandated audit reports were similar in substance because they expressed an opinion on the fairness of the financial statements. However, they differed in style. This chart compares the differences between the previous PCAOB, the new PCAOB, and the AICPA standard audit reports.

PCAOB Versus AICPA Standard Audit Report

Report Item

PCAOB

New PCAOB

AICPA

Title of the Report

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Independent Auditor’s Report

Section Headings

No Section Headings

Uses Section Headings

Uses Section Headings

Reference to Auditing Standards Used

Standards of the PCAOB

Standards of the PCAOB

Auditing standards generally accepted in the U.S.

New Requirement in Signature Block

N/A

Include the year that the auditor began auditing the client

N/A

Also, unlike the AICPA’s standard report that places the opinion in the last section of the report, the new PCAOB report places the opinion in the first section of the report. Additionally, the new PCAOB report uses section headings.

And finally, both reports previously included the statement: “Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,” but the new PCAOB report now adds the following phrase to the end of the sentence: “whether due to error or fraud.”

Testing on the PCAOB Auditing Report

The new PCAOB standard will appear on the AUD CPA Exam section. When the CPA Exam begins testing the new PCAOB standard, you may see multiple-choice questions that ask about the differences between the PCAOB standard report and the AICPA standard report. The process of preparing a PCAOB report may also appear in a Task-Based Simulation. No matter how the CPA Exam assesses your understanding of the PCAOB report, you should remember that the overall purpose and nature of both the PCAOB and AICPA reports are similar.

CPA Exam Scheduling Strategy

Whenever the AICPA announces a change, candidates always wonder: how should this affect my CPA Exam schedule? Again, the new PCAOB auditing report only affects the AUD section of the CPA Exam. The good news is that this change should not rearrange your exam schedule. Though the CPA Exam will test the new PCAOB standard starting July 2018, we do not anticipate that AUD will address this standard any more than the AICPA standards. You should note when AUD will include the updated standard, but you shouldn’t feel any distress about these changes because Gleim CPA will add them to our course with enough time for you to study them.

AUD CPA Exam Review

No matter when you sit for AUD, you can count on Gleim CPA Review to reflect all of the PCAOB auditing standard changes you need to know about when you need to know them. Gleim CPA Review is always updated according to the latest testable content for every CPA Exam section, so you don’t have to worry. Trust Gleim to prepare you, and see how well our course will prepare you. Access our free CPA demo today!