The proposed revisions to the IAASB standards will change the
face of audit reporting, but how meaningful will that change
At the end of July 2013, the International Auditing and
Assurance Standards Board (IAASB) released a suite of exposure
drafts which propose to revise the auditor's report on
financial statements and to make the auditor's report more
informative. The proposals were based on academic research started
as early as 2009, a public consultation paper in 2011, a public
invitation to comment in 2012, global roundtables to solicit
feedback and interactions with regulators.
Based on these consultations and the comments gathered, the
IAASB concluded that it is essential for the auditor's report
to change to meet the information needs of a variety of users of
the financial statements, including regulators. In amending a
number of existing reporting standards and proposing a new
standard , the IAASB will change not only how the auditor reports,
but also what the auditor reports.
Starting with the how - the proposals amend the format and
layout of the auditor's report, making the opinion more
prominent by moving it to the front of the report. The opinion is
followed by key audit matters, a statement on going concern and
finally information about the responsibilities of management and
Moving on to the what - the proposals require the auditor to
make an explicit statement about management's use of the going
concern assumption in preparing the financial statements, as well
as a statement about whether a material uncertainty has been
identified in relation to going concern.
For listed companies, proposed ISA 7012 will also require the
auditor to report "key audit matters", defined as
"those matters that, in the auditor's professional
judgment, were of most significance in the audit of the financial
statements of the current period" . Key audit matters will be
selected from matters discussed with those charged with governance,
for example audit committees. Disclosures in the auditor's
report will include why the matter is considered a key audit
matter, the effect on the audit (if considered necessary) and
reference to the related financial statement disclosures, if
The IAASB expects these proposals to improve the communicative
value to users of the auditor's report, to improve users'
perceptions of audit quality and to enhance the auditor's
communication with those charged with governance. It also expects
management to improve financial statement disclosures linked to the
matters that the auditor chooses to disclose as key audit
It remains to be seen whether the proposed auditor's report
will deliver these benefits in practice. There is a risk that the
disclosure of similar key audit matters in different companies will
become standardised or "boiler plated", which will
ultimately diminish the communicative value of the report. This is
particularly true of matters that are generic to an industry, for
example the valuation of financial instruments in banks or
rehabilitation provisions in mines. At best, where key audit
matters are truly specific to an entity, users may derive the
benefits anticipated by the IAASB. At worst, given the length of
the new report, users may just turn to the opinion, which they can
now conveniently find in the first paragraph of the report.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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