IAASB seeks comment on the future of audit reports
Jun 25, 2012
The International Auditing and Assurance Standards Board (IAASB) has released an Invitation to Comment: 'Improving the Auditor’s Report', which sets out the indicative direction of the board’s future standard-setting proposals to improve how and what auditors report in accordance with International Standards on Auditing (ISAs).
The Invitation to Comments asserts, on the basis of research and feedback the IAASB has received on its May 2011 Consultation Paper, that there is clear demand for auditors to provide greater transparency about significant matters in the financial statements, as well as the conduct of the individual audit. Further, the IAASB considers that meaningful change now, rather than incremental change over time, is seen as necessary in order to better meet the information needs of users of audited financial statements.
The Invitation to Comment includes the following key proposals:
- Auditor commentary. Additional information would be included in the auditor’s report to highlight matters that, in the auditor’s judgement, are likely to be most important to users’ understanding of the audited financial statements or the audit. This information would be required for public interest entities (PIEs) – which includes, at a minimum, listed entities – and could be provided at the discretion of the auditor for other entities. In the IAASB's view, this new concept of Auditor Commentary is consistent with, and builds upon, the existing concepts of Emphasis of Matter and Other Matter paragraphs included in some audit reports. It also responds to calls for similar reforms from the US Public Company Accounting Oversight Board (PCAOB), the European Commission (EC)
- Going concern. The auditor's report would contain the auditor's conclusion on the appropriateness of management’s use of the going concern assumption in preparing the financial statements and an explicit statement as to whether material uncertainties in relation to going concern have been identified. The report would also include a description of management’s responsibilities with respect to going concern
- Other information included with the financial statements. The report would have an auditor statement as to whether any material inconsistencies between the audited financial statements and other information have been identified based on the auditor’s reading of other information, and specific identification of the information considered by the auditor
- Other matters. Further suggestions to provide clarity and transparency about audits performed in accordance with ISAs - including the ordering of the items in the auditor's report (prominently displaying the auditor's opinion), disclosure of the engagement partner’s name in the auditor’s report, an explicit statement of compliance with relevant ethical requirements, disclosure about the involvement of other auditors in the audit, enhancements to the description of the auditor’s responsibility to explain more fully the concept of a risk-based audit and address fraud, internal control and other matters.
The Invitation to Comment includes a section illustrating an example auditor's report prepared in accordance with the proposals.
The Invitation to Comment is open for comment until 8 October 2012. The IAASB will continue deliberations during 2012 and 2013, including holding roundtables on the proposals, and the next consultative document will be an exposure draft.
Click for IAASB press release (link to IFAC website).