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IAASB exposure draft proposes significant changes to audit reports

  • IAASB (International Auditing and Assurance Standards Board) (lt gray) Image

26 Jul 2013

The International Auditing and Assurance Standards Board (IAASB) has released an exposure draft which proposes changes to audit reports, including the provision of more information on how audits are performed. Among other changes, a key development would be the introduction of a 'key audit matters' section in the audit report on audits of listed entity financial statements.

The proposals in the IAASB exposure draft, entitled Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs), follow from earlier consultation documents published in May 2011 and June 2012, which were developed after earlier research on user perceptions on auditor reports. It also responds to constituent feedback in light of the global financial crisis and European Commission (EC) proposals on audit reform.

The key proposals in the exposure draft include:

  • Key audit matters. The audit report for audits of listed entity financial statements would include a new section outlining the key audit matters arising during the audit, being "those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period". Such matters would be selected from the matters communicated by the auditor to those charged with governance over the entity being audited
  • Independence. The audit report would include an explicit statement that the auditor is independent of the entity and has fulfilled any other relevant ethical requirements, and disclose the sources of those requirements
  • Engagement partner. For audits of financial statements of listed entities, the audit report would be required to explicitly state the name of the engagement partner
  • Prominence of opinion. The auditors opinion would be placed at the beginning of the audit report
  • Ordering. Whilst not mandating specific requirements, the proposals outline a preferred ordering and placement of the elements of the audit report
  • Going concern. The auditor would be required to report on going concern in the audit report, including a conclusion the appropriateness of management's use of the going concern basis and a statement whether a material uncertainty about going concern has been identified
  • Auditor responsibilities. Improvements are proposed about how the responsibilities of the auditor are described and the key features of the audit. Some elements of the description of responsibilities would be permitted to be moved to an appendix, or referenced from a website of an appropriate authority.

The proposed 'key audit matters' section of the audit report replaces earlier proposals for an 'auditor commentary' which would have required the audit report to highlight matters "likely to be most important to users' understanding of the audited financial statements or the audit". Constituent feedback on the 'auditor commentary' proposal expressed concern about the emphasis on users (in that it would require the auditor to take responsibility for determining what is important a user's understanding of the financial statements) , and the possible inclusion of 'original information' in the audit report (which may blur the roles of management, those charged with governance and the auditor). The revised proposals for the 'key audit matters' section responds to these concerns by linking it with the dialogue with those charged with governance.

The exposure draft is open for comment until 22 November 2013. Click for IAASB press release (link to IFAC website).

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