The proposed revisions to the IAASB standards will change the face of audit reporting, but how meaningful will that change be?

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 the auditor.

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 any.

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 matters.

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.

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