Finance execs and investors may finally get a little bit of clarity from auditors — but that’s not necessarily good news.
Thanks to a new rule adopted by the Public Company Accounting Oversight Board (PCOAB), companies can expect financial statements to be a little easier to get through.
Auditing Standard No. 6 (if approved by the SEC), will require auditors to clearly state whether corrections made to a company’s financial reports were:
- Because of an error or misstatement on the company’s behalf, or
- A result of a change in accounting rules.
Under the old rules, auditors weren’t required to distinguish why they’d made certain changes, and their impossible-to-decipher notes would leave financial departments and investors scrambling to find out why alterations were needed.
This rule change will improve communication between a company’s accountants and its auditors — they’ll be able to comprehend the situation quicker and decide if any preventative actions need to be taken.
But clarity comes at a certain price: Auditors will plainly state if changes were made because of a company’s mistake, and that can make slip-ups a very noticeable event (especially in public companies). Without the security blanket of “It was an accounting change, not a mistake on our part!” availible as a fall-back, the heat’ll be on for Finance departments to step up compliance efforts.