TIC has reviewed the ASB Exposure Draft, Auditor Reporting, and is providing the following comments for your consideration.

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1 April 23, 2018 Ms. Sherry Hazel Audit and Attest Standards Team AICPA 1211 Avenue of the Americas, 19th Floor New York, NY Re: November 28, 2017 ASB Exposure Draft (ED), Auditor Reporting Dear Ms. Hazel: One of the objectives that the Council of the American Institute of Certified Public Accountants (AICPA) established for the PCPS Executive Committee is to speak on behalf of local and regional firms and represent those firms interests on professional issues in keeping with the public interest, primarily through the Technical Issues Committee (TIC). This communication is in accordance with that objective. TIC has reviewed the ASB Exposure Draft, Auditor Reporting, and is providing the following comments for your consideration. GENERAL COMMENTS TIC appreciates the effort the Auditing Standards Board (ASB) put forth to develop this proposed SAS, which calls for some significant changes to the auditor reporting model due to financial statement users asking for more information about significant aspects of the audit. TIC understands that this proposal is a big leap forward in an effort to converge with International Auditing Standards (ISAs) on reporting and disclosures. TIC agrees with most aspects of this proposed standard. However, TIC does have concerns about Key Audit Matters (KAMs) and some of the wording used in the ED is not clear enough related to noting that this will be optional for nonissuers. TIC believes that there are some additional opportunities in the new standards to make it clear that reporting of KAMs is not required for nonissuers. TIC has noted some of those potential areas where this point could be made clear later in this letter. In addition, TIC could foresee instances where the addition of KAMs could detract from other critical sections of the auditors report. Consistency in reporting also could become an issue and TIC could foresee situations where private companies are forced into presenting KAMS due to pressures from those charged with governance or regulators, not-for-profit entities could be a good example as well.

2 In addition, similar to the concerns that TIC raised in its comment letter on the EBP Auditor Reporting ED dated August 9, 2017, TIC does not believe that requiring certain information in a report necessarily enhances audit quality. TIC raised similar concerns with the reporting of findings that was proposed with the EBP Auditor Reporting ED. SPECIFIC COMMENTS Question 1: Are the proposed revisions to existing requirements clear and understandable, and is the application material helpful in supporting the application of those requirements? Yes, TIC does believe that most of the revisions to existing requirements are clear and understandable. However, TIC does have some items for potential further clarification that we have noted later in this letter, notably related to KAMs. TIC also thinks the application material is helpful in supporting the application of those requirements. TIC also has a few suggestions related to the application material that we address later in this letter as well. Question 2: Are the descriptions of the responsibilities of management and the auditor relating to going concern (paragraphs 31b and 36biv) useful and understandable, in view of the calls for more information in the auditor s report about their respective responsibilities in this area? Would any modifications to the descriptions of management s responsibility be necessary for any specific financial reporting framework? Are there any concerns about possible confusion or misinterpretation about the auditor s responsibilities, in particular the requirement to conclude on the entity s ability to continue as a going concern, recognizing that the description is consistent with the requirement in paragraph.20 of AU-C section 570 (SAS No. 132)? TIC believes additional clarification guidance is needed to assist auditors with requirements when the financial reporting framework does not require a going concern determination. TIC believes references in the application material to specific frameworks with examples would be appropriate. However, TIC believes that the auditor's responsibilities should not only be dependent on what framework the client is using. TIC believes that an auditors considerations should be consistent across all audits, regardless of the accounting and financial reporting framework. TIC believes if any differences are determined to be appropriate, then the ASB should address how that applies to the more widely-utilized special purpose frameworks. Question 3: Will the requirement to identify those responsible for the oversight of the financial reporting process present any practical difficulties when those responsible for the oversight of the financial reporting process are also responsible for preparation of the financial statements (as may be the case, for example, in a small owner-managed entity)?

3 TIC believes there may not be an added benefit to putting this information in the report as in certain cases it could result in confusion and it might detract from the fact that management is ultimately responsible for the fair presentation of the financial statements. Question 4: Does the expanded description of the auditor s responsibilities, including the key features of the audit, provide useful information and greater transparency into what an audit is and what the auditor does? Are there any aspects of the auditor s responsibilities that should be added? TIC believes that the proposed section 700 is too light on optionality wording related to KAMs and this is currently addressed mostly in the proposed section 701. TIC s preference would be to address the optionality in section 700 as well so that constituents only need to look to section 701 when they chose to include KAMs. For instance, the Introduction Scope section of this proposed standard in paragraph 2 reads as follows: Proposed SAS Communicating Key Audit Matters in the Independent Auditor s Report addresses the auditor s responsibility to communicate key audit matters in the auditor s report. TIC believes this wording should reflect the optionality for private companies at the start of the standard. Perhaps it could be added as part of the application guidance. For example, paragraph. A1 could indicate that KAMs are not required for audits of nonissuers. Alternatively, perhaps paragraph 28 should clearly indicate that reporting KAMs is optional. In addition, paragraph.28 currently indicates the following: The auditor may be required to communicate key audit matters by law, regulation, or contractual agreement. TIC is currently unaware of a situation where a non-public business entity would be required to communicate KAMs. Therefore, unless the ASB has specifically identified situations where this would occur, TIC believes this wording should be removed from the ED to prevent any confusion in practice. Question 5: What are your views regarding whether the requirements and guidance in the proposed SAS will be helpful for auditors in determining and communicating KAMs? As discussed earlier in this letter, TIC believes the optionality of KAMs for nonissuers should be addressed first in section 700, as noted in our response to question 4 above. Similarly, paragraph 1 should contain guidance such as what is currently suggested to be included in.a1, indicating that KAMs are not required for audits of nonissuers.

4 Paragraph.A2 (on page 93) reads as follows: The communication of key audit matters in the auditor s report may also enhance communications about those matters between the auditor and those charged with governance and may increase attention by management and those charged with governance to the disclosures in the financial statements to which reference is made in the auditor s report. TIC does not believe that the final standard should suggest that, by adding key audit matters, we may enhance communication with governance and increase attention by management. This implies that, by not adding KAMs, your audit may be something less than if you did add KAMs. Further, TIC does not agree that putting an item in your report would necessarily improve audit quality. Again, this is consistent with our comments related to reporting of findings in the EBP Auditor Reporting ED. Therefore, TIC would suggest the removal of paragraph.a2 altogether. TIC also believes the ED should also have some precautions for those who wish to note KAMs in their reports. Paragraph.A7 of the ED indicates the following: This proposed SAS does not require the communication of key audit matters in the auditor s report. However, the auditor may be engaged to communicate key audit matters or may be required by law, regulation, or contractual agreement to do so. TIC was confused as to the placement of this paragraph as it does not seem to correlate to the related required guidance. In addition, as noted in TIC s response to question 4 above, TIC does not foresee situations where this would be applicable and, therefore, we suggest removal altogether. Question 6: Is it sufficiently clear that the communication of KAMs is not required for audits of nonissuers? TIC does not believe it is sufficiently clear that the communication of KAMs is not required for audits of nonissuers and we have made some suggestions in the preceding comments as to how this might be resolved and made clearer for constituents. Question 7: Are the revisions to existing requirements clear and understandable, and is the application material helpful in supporting the application of those requirements? Yes, TIC believes these revisions to existing requirements are clear and understandable, with the exception of one possible clarification. Paragraph.30 indicates that KAMs should not be included when the auditor expresses an adverse opinion or disclaims an opinion. TIC agrees with this notion; however, what does one do when they have been engaged to report KAMs but cannot because of the above reasons? For instance, if the auditor is engaged to report on KAMs, but they

5 don t identify any KAMs, the auditor is required to indicate that in their report. Perhaps this issue could be addressed in the implementation guidance. In addition, paragraphs.a35 and.a36 do not address communication or reporting. TIC believes it is likely that communication likely would be made to those charged with governance, but this is not overtly indicated in the proposal. Perhaps something also could be added to the implementation guidance. Illustration 3 on page 160 in the reporting section has an adverse opinion example and the circumstances indicate that the auditor is precluded from communicating KAMs. If an auditor is engaged to report on KAMs, but unable to present KAMs because of an adverse opinion, should this be required to be called out in the report? TIC believes this should be addressed in the standard or the applicable implementation guidance. Question 8: Are the revisions to existing requirements clear and understandable, and is the application material helpful in supporting the application of those requirements? Yes, TIC believes the revisions to existing requirements are clear and understandable and the application material is helpful in supporting the application of those requirements. Question 9: Is the interrelationship between emphasis-of-matter or other-matter paragraphs and KAMs clear and understandable, recognizing that the communication of KAMs is not required for audits of nonissuers? If not, what additional guidance would be helpful? Yes, TIC does believe that the interrelationship between emphasis-of-matter or other-matter paragraphs and KAMs is clear and understandable. However, TIC was confused by the fact that, in this ED, the order of certain items in the report is more important than perhaps it was under the current reporting standard, but in the case of Other-Matter paragraphs in.a14 (on page 193 of the ED), the placement is subjective. TIC believes it may just be less confusing for practitioners if the placement of these paragraphs were made clear rather than leaving this to judgment. Question 10: Should the requirement in AU-C section 260 be more specific regarding the timing of communication about certain matters with those charged with governance, including whether there should be a requirement for certain communications to be made prior to issuance of the auditor s report? TIC s preference would be to retain the flexibility in the timing of communications due to the variety of circumstances that may be encountered during an audit of a nonissuer. Question 11: Please provide your views on the following: a. Would including the city and state of the addressee in the auditor s report be beneficial to users of the financial statements? b. What would the practical implications be if such a requirement were adopted?

6 TIC does not believe including the city and state of the addressee in the auditor s report would provide any benefit and could possibly create an administrative burden to determine the address to use when entities have multiple locations. Essentially, it would create an administrative burden with little to no value added to the readers of the financial statements. TIC also believes in a changing environment where more and more work is done virtually and offices and locations are going more virtual as well so that, the concept of physical location is becoming somewhat dated. Question 12: Are the proposed changes appropriate and sufficient for purposes of enhancing the focus of the auditor on disclosures and, thereby, further enhancing audit quality? Yes, TIC believes that the proposed changes provide a more holistic approach so that creating a separate standard to address disclosures would not be necessary. Question 13: Are there any specific areas where, in your view, additional enhancements to either the requirements or application material would be necessary for purposes of effective auditing of disclosures as part of a financial statement audit? TIC cannot think of any additional enhancements except for those previously noted in this letter. Question 14: Will the proposed changes to the assertions in AU-C section 315 help appropriately integrate the auditor s audit approach to the risk of material misstatement in the disclosures with the audit work on the underlying amounts, thereby promoting a more effective audit of disclosures? Yes, TIC believes the proposed changes to the assertions in AU-C section 315 will help to appropriately integrate the auditors audit approach to the risk of material misstatement in the disclosures with the audit work on the underlying amounts and would, therefore, promote a more effective audit of disclosures. ADDITIONAL COMMENTS TIC believes that Paragraph.40 covering the signature of the auditor should include a statement that personal name and signature of the auditor is not required. The application guidance in.a52 and.a53 addresses when the personal name and signature of the auditor may be required; however, it does not specifically indicate as to whether it is required in the U.S. TIC noticed that throughout this proposal, the term in accordance with accounting principles generally accepted in the United States of America is interchangeable with the term in conformity with accounting principles generally accepted in the United States of America. However, TIC would suggest that ASB go with the clarified wording convention of in accordance with throughout this standard as to prevent confusion.

7 TIC appreciates the opportunity to present these comments on behalf of PCPS member firms. We would be pleased to discuss our comments with you at your convenience. Sincerely, Michael A. Westervelt, Chair PCPS Technical Issues Committee cc: PCPS Executive and Technical Issues Committees