The requirement to disclose tenure became effective for audits of fiscal years ending on or after December 15, 2017. PCAOB Auditing Standard 3101 – The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses and Unqualified Opinion requires a statement about auditor tenure – that is, the year the auditor began serving consecutively as the company’s auditor.
The PCAOB offers guidance for the determination of tenure, the reporting of tenure, and the decision to include additional historical information about predecessors. However, auditors have discretion regarding exactly what and how the information is disclosed, resulting in substantial variation in disclosures.
In addition, auditors also have discretion to provide additional information in the auditor’s report regarding tenure if the information would provide context or would otherwise assist the reader’s understanding of the relationship between the auditor and the company. For example, it may be disclosed that tenure was calculated taking into account the tenure of predecessor accounting firms and/or engagement by predecessors of the company under audit.
The most common tenure disclosure is simply “We have served as the Company’s auditor since YEAR.” Below are a few examples of how some auditors chose to disclose tenure.
Out of the 6,857 companies that filed opinions on or after December 15, 2017, 98% disclosed auditor tenure- with only 128 companies having no tenure disclosure in the original filing or subsequent amendments (this includes companies with just one filing).1
To get a better understanding of the implementation of this requirement, we looked at Q1 2018 – the first full quarter following the effect of AS 3101 – compared to Q1 2019.
- Q1 2018:
- 4,116 10-K opinions
- 202 S-1 opinions
- Q1 2019:
- 4,254 10-K opinions
- 431 S-1 opinions
For more information on this analysis or auditor tenure in general, please contact us.
1.In this analysis, we looked at audit opinions conducted in accordance with the Standards of PCAOB for FYEs on or after December 15, 2017, filed on forms 10-K, 10-K/A, 10-KT, 10-KT/A, S-1, S-1/A, DRS, and DRS/A. We excluded all opinions filed after May 31, 2019. Out of the 14,227 opinions (6,857 registrants), there were 3 filings in 2017, 8,174 in 2018 and 6,050 in 2019.↩