One of the questions around the disclosure framework is how the FASB will coordinate with the SEC and IASB. One issue that may make this question even more interesting is that a new group has potentially inserted itself in the discussion. Last month, the PCAOB released a concepts statement outlining proposed revisions to the auditor reporting model. In their outreach activities, the PCAOB conducted a survey of various investor groups to see what they believe auditors should discuss in a revised report. A majority of respondents indicated that auditors should discuss:

• Areas with the greatest financial statement and audit risk (77%)
• Significant estimates and judgments made by management as well as auditor assessment of those (79%)
• Quality not just acceptability of accounting policies (65%)
• Results of sensitivity analyses in areas of judgment (65%)
• Unusual transactions, changes in segment reporting, restatements, and changes in entities consolidated (67%)

One of the more contentious proposals is an Auditor Discussion and Analysis (ADA) section in the 10-k in which the auditor would discuss these items. Investors strongly support this option but not surprisingly, preparers, auditors, and audit committees are opposed. They contend that these items should be communicated directly to investors by management/audit committee. Indeed, all of these items are required within MD&A and the financial statements themselves so auditor discussion would create some level of redundancy. But these items also mimic the categories discussed in the disclosure framework project.

It is clear that investors are dissatisfied with disclosures in these areas. Faced with an option like the proposed ADA section, I would think that preparers and auditors would be even more accepting of disclosure reform as an alternative. Could the FASB and PCAOB coordinate in this area or are these projects better addressed separately?]]>