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Research Insights — Consequences of Changing the UK Auditor's Report

May 23, 2016

On May 23, 2016, the International Federation of Acountants (IFAC) posted a recent study by Elizabeth Gutierrez, Miguel Minutti-Meza, Kay W. Tatum, and Maria I. Vulcheva entitled “Consequences of Changing the Auditor’s Report: Evidence from the UK,” which examines the consequences of the new auditor’s report in the UK, in terms of the costs of audits, audit quality, and investors’ reaction to the report’s filing.

The auditor’s report has long been criticized for its standard nature and boilerplate wording. Arguably, the previous auditor’s report did not provide investors with much, if any, insight into the audit process. The UK’s Financial Reporting Council (FRC) decided to address these concerns by issuing International Standard on Auditing 700 (UK and Ireland, revised June 2013), The Independent Auditor’s Report on Financial Statements. The FRC standard requires auditors to describe the most significant risks of material misstatement; disclose the levels of overall and performance materiality; and explain the scope of the audit.

The International Auditing and Assurance Standards Board (IAASB), the European Union (EU), and the US Public Company Accounting Oversight Board (PCAOB) have taken, or are taking, steps similar to those of the FRC.

Overall, the results of the study suggest that the new disclosures of risks of material misstatement for the company and the materiality level used by the auditor are not completely boilerplate, since they are associated with audit cost and quality. However, the change in the auditor’s report format has not resulted in a significant change in the manner in which the audit is conducted or in an increase in audit costs in the two years after the introduction of the new rules.

Review the study on the IFAC's Web site.

SEC seeks comments on PCAOB rules on audit transparency

Feb 08, 2016

On February 8, 2016, the Securities Exchange Commission (SEC) issued a notice to solicit public comments on the Public Company Accounting Oversight Board (PCAOB)’s proposed rules that would require audit firms to disclose the name of the engagement partner and information about certain other audit participants on a new Form AP, “Auditor Reporting of Certain Audit Participants.”

For more information, see the SEC’s notice as well as Deloitte US’s Audit & Assurance Update on the PCAOB’s proposals. 

The Role of the Auditor General in Creating Public Trust and Value

Jan 26, 2016

In this webcast, International Federation of Accountants (IFAC) Board Member, Carol Bellringer, Auditor General of British Columbia, Canada, discusses the role of the Auditor General and government and public sector financial reporting. She notes the importance of building public trust and economic value and how the work of accountants is critical to these ends.

Listen to the webcast on the IFAC's Web site.

IAASB Seeks Feedback On Standard-Setting Activities to Enhance Audit Quality

Dec 17, 2015

On December 17, 2015, the International Auditing and Assurance Standards Board (IAASB) released an Invitation to Comment, Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits (the ITC). This ITC highlights the board’s discussions in these three topic areas and indicates potential standard-setting activities that could enhance audit quality.

The IAASB released a companion document, Overview of the ITC, which summarizes the key areas the IAASB is exploring and the direction it may take.

The IAASB’s Framework for Audit Quality, issued in 2014, explains the important role of auditors and their firms—as well as other stakeholders—in audit quality, and the contextual factors that affect it. It is an important reference document for this consultation.

Download the Invitation to Comment from the IAASB's Web site.

IAASB Project Update - Enhancing Audit Quality Focusing on Group Audit

Oct 04, 2014

On October 4, 2017, the International Auditing and Assurance Standards Board (IAASB) released a publication prepared by the IAASB Group Audits Task Force to update the issues under consideration in the revision of ISA 600, Special Considerations‒Audits of Group Financial Statements, and other projects that address other international standards, including ISA 220, Quality Control for an Audit of Financial Statements, and ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.

This publication also explains the linkages between these projects as they relate to group audit issues.

Review the publication on the IAASB's website.

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