ASB recommends scoping nonissuers out of "auditor commentary" requirements

An American Institute of Certified Public Accountants committee is weighing in on a recent International Auditing and Assurance Standards Board (IAASB) proposal that would require expanded commentary in auditors’ reports.
Nonissuers, such as private companies and nonprofits, should be scoped out of requirements for “auditor commentary” when the IAASB’s proposed standard is developed, according to a comment letter submitted this week by the AICPA’s senior committee for auditing and attestation.

The AICPA Auditing Standards Board (ASB) wrote that auditor commentary would have limited practical relevance for many users of audited financial statements of nonissuers in the US, and therefore should not be required for nonissuers because of cost/impediment considerations.

This opinion was in response to an invitation to comment (ITC) issued by the IAASB, which is examining auditor reporting.

The ASB supports the IAASB’s efforts to enhance the relevance of auditor reporting, and that many of the proposed changes included in the ITC will result in clearer and more relevant reports for financial statement users. But the ASB wrote that the focus of any changes to auditor reporting should:

  • Address information and expectations gaps.

  • Maintain or enhance audit quality.

  • Define reporting requirements that are clear about management’s responsibility as the original source of entity-specific information. 

The ASB wrote that there needs to be a broad-based approach to improving the transparency and relevance of financial reporting that incorporates financial reporting standard setters, management and those charged with governance – as well as auditors.

The ASB submitted its letter on Monday, which was the deadline for comments.

Changes to the auditor’s report proposed by the IAASB in the ITC include:

  • Requiring additional information to be provided as “auditor commentary” to highlight matters the auditor believes would be most important to users’ understanding of the audited financial statements or the audit.

  • A conclusion by the auditor on the appropriateness of management’s use of the going-concern assumption in preparing the financial statements, and an explicit statement about whether material uncertainties related to going concern have been identified.

  • A statement by the auditor identifying whether any material inconsistencies between the audited financial statements and other information have been found based on the auditor’s reading of other information. Specific identification of the information considered by the auditor also would be included.

The ASB wrote that if the IAASB moves forward with the concept of auditor commentary, it should limit the requirement to listed entities.

“Many users of nonissuer financial statements often have access to management or owners and as such are obtaining information specific for their needs directly from the company,” the ASB wrote.

Certain reporting enhancements in the newly adopted AICPA clarified standards will improve the usability of reports for nonissuers, according to the ASB.

In addition, the ASB said any revisions to auditor reporting on the subject of going concern should be accompanied by changes in management’s responsibilities – including the responsibility to assess substantial doubt – and revisions or interpretations for the auditor to develop consistent application of the standard.

The ASB wrote that the going concern disclosures discussed in the ITC would result in continued misunderstanding by financial statement users regarding current auditor responsibilities and reporting, and the expressed need for “early warnings” on liquidity and other material uncertainties.

In addition, the ASB wrote that:

  • Including the engagement partner’s name on the report would not add value, but is common in jurisdictions outside the US and should be left up to national standard setters.

  • Disclosures regarding the involvement of other auditors may be useful as long as they don’t detract from the “sole responsibility” principle.

  • Consistency in reporting should come from the required elements of the report and not necessarily from the ordering of the elements, and that flexibility is needed in ordering the required elements of the report to allow national standard setters to adjust the order based on needs of local jurisdictions.


Ken Tysiac ( is a CGMA Magazine senior editor.