The Public Company Accounting Oversight Board has published its promised concept release to serve as a discussion starter for how to overhaul the traditional, pass-fail, boilerplate audit report.

The concept release outlines ideas like requiring auditors to publish a discussion and analysis statement describing what they did and what they found in the course of auditing a company's financial statements, or requiring auditors to make more routine use of emphasis paragraphs to call attention to significant areas of a company's financial statements. It also looks for feedback on whether auditors should be required to issue opinions on information outside the financial statements, such as management's discussion and analysis or other documents issued by management, or whether investors' demands for more information could be met simply by better explaining what is already provided by auditors.

The concept release is meant to open a broad debate on how investors can get more information about what auditors do and what they observe as they provide opinions on financial statements. It is not meant to alter the auditor's fundamental responsibilities. Board members said they are looking for feedback on all the ideas they've developed, and any others that might materialize during the debate, on how the audit report should be altered. The board published a summary fact sheet of the concept release as well.

In the wake of the financial crisis, investors have called on the PCAOB to make the audit report more useful. They're particularly angry that audit reports do nothing to forewarn investors when a company is in dire financial straits. “While auditors most certainly did not cause the financial crisis, some people have legitimately questioned whether audits adequately served investors' needs in the months and years before and during the crisis,” said PCAOB Chairman James Doty.

The idea of revising the audit report began as an exploration of what to do about the “expectation gap,” said Doty. “Depending on where one sat, this meant either that investors expect too much from audits, or that auditors do too little.” The concept release exploring changes to the audit report is meant to go beyond plugging the expectations gap, he said. “This project is about what investors want from audit reports in the future, and how audit reports can be more useful to society. It's about how audits can provide investors more insightful assessments of management stewardship.”

Board members acknowledged some of the changes that might be considered would be costly to implement. Several board members emphasized they're looking for insight into the cost-benefit analysis of making significant changes to the contents of the auditor's report. “To be sure, increasing procedures or scope involves cost,” said Doty, “but so does investor doubt about the reliability of management's statements.”

The PCAOB plans to accept feedback on the concept release through Sept. 30 and host a public roundtable during the third quarter.

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