Come year end 31 December 2016, you are going to see a new type of auditor's report in your financial statements. According to the International Auditing and Assurance Standards Board (IAASB), the change is necessary to meet the demand by investors and other financial statements users to have a more informative report from the auditors which will be more relevant to their needs. The auditor's report, according to the IAASB is a key deliverable communicating the results of the audit process and as such enhanced auditor reporting is critical to influencing the perceived value of the financial statements audit.
The new report is intended to:
a) Title:-A clear title to indicate that it is a report of an independent auditor. This is to distinguish the independent auditor’s report from reports issued by others. Same as the old report.
b) Addressee:-The report will be addressed, as appropriate, based on the circumstances of the engagement. This is normally to the shareholders/members of the company. However, law, regulation or the terms of the engagement may specify to whom the auditor’s report is to be addressed in that particular jurisdiction. Same as the old report.
c) Auditor's opinion:- The opinion of the auditor now comes first with a clear heading "Opinion". This section will identify the entity whose financial statements have been audited, state that the financial statements have been audited, identify the title of each statement making up the financial statements, refer to notes and summary of significant accounting policies and the period covered by the financial statements.
d) Basis for opinion:- This section comes immediately after the opinion section with a clear heading "Basis for opinion". This section will state that the audit was conducted in accordance with International Standard on Auditing, refers the auditor's responsibilities under ISA section in the report and make statement of the independence of the auditor in accordance with relevant ethical requirements relating to audits.
e) Key Audit Matters:-A new section to communicate key issues which came up during the audit. Key Audit Matters (KAM) are those matters that, in the auditor's judgment, were of most significance in the audit of the current year financial statements. This section is mandatory for audits of financial statements of listed companies but voluntarily for non-listed companies.
f) Responsibilities for the financial statements:-This section describes management's responsibilities for preparing the financial statements, assessment of going concern and setting up the appropriate controls over the financial reporting process.
g) Auditor's responsibilities for the audit of the financial statements:- This section outlines the objectives and the responsibilities of the auditor. Pretty much like the old report. However, the auditor has the option to include this section in the body of the report or as an appendix to the report in which case the a reference to the location of the auditors responsibilities is made in the report.
h) Other reporting responsibilities:-This section will have a clear heading "Report on other legal and regulatory requirements" or otherwise as appropriate. In this section, the auditor will address other reporting requirements different from the requirement of the ISAs.
I) Name of the engagement partner:-The name of the auditor partner responsible for the audit of the complete set of the financial statements will be included in the report. This is mandatory for audits of financial statements for listed companies. However, where such inclusion will lead to significant personal security threat to the partner, he will discuss the issue with those charged with governance not to include the name.
j) Signature of the auditor:- The auditor will sign the report as usual.
k) Auditor's address:- The auditor will indicate the location in jurisdiction where s/he practices.
l) Date of the report:- The date of the report will not be earlier than the date the auditor obtained sufficient appropriate evidence on the complete set of the financial statements and the date the appropriate authority approved the financial statements.
The IAASB issued a new standard ISA 701 and revised ISA 700, 705, 706, 570 and 260 to implement the new auditor's report.
I will like to hear your thought on the new auditor's report if you are a stakeholder.
Visit the IAASB website to get more details.
Sources:
1. Reporting on audited financial statements
2. Auditor Reporting - Fact Sheet
3. Final pronouncement - January 2015
The new report is intended to:
- Enhance communication between auditors and investors, as well as those charged with corporate governance;
- Increase user confidence in audit reports and financial statements;
- Increase transparency, audit quality and enhance information value;
- Increase attention by management and financial statements preparers to disclosures referencing the auditor's report;
- Renew auditor focus on matters to be reported that could result in an increase in professional skepticism and;
- Enhance financial reporting in the public interest.
a) Title:-A clear title to indicate that it is a report of an independent auditor. This is to distinguish the independent auditor’s report from reports issued by others. Same as the old report.
b) Addressee:-The report will be addressed, as appropriate, based on the circumstances of the engagement. This is normally to the shareholders/members of the company. However, law, regulation or the terms of the engagement may specify to whom the auditor’s report is to be addressed in that particular jurisdiction. Same as the old report.
c) Auditor's opinion:- The opinion of the auditor now comes first with a clear heading "Opinion". This section will identify the entity whose financial statements have been audited, state that the financial statements have been audited, identify the title of each statement making up the financial statements, refer to notes and summary of significant accounting policies and the period covered by the financial statements.
d) Basis for opinion:- This section comes immediately after the opinion section with a clear heading "Basis for opinion". This section will state that the audit was conducted in accordance with International Standard on Auditing, refers the auditor's responsibilities under ISA section in the report and make statement of the independence of the auditor in accordance with relevant ethical requirements relating to audits.
e) Key Audit Matters:-A new section to communicate key issues which came up during the audit. Key Audit Matters (KAM) are those matters that, in the auditor's judgment, were of most significance in the audit of the current year financial statements. This section is mandatory for audits of financial statements of listed companies but voluntarily for non-listed companies.
f) Responsibilities for the financial statements:-This section describes management's responsibilities for preparing the financial statements, assessment of going concern and setting up the appropriate controls over the financial reporting process.
g) Auditor's responsibilities for the audit of the financial statements:- This section outlines the objectives and the responsibilities of the auditor. Pretty much like the old report. However, the auditor has the option to include this section in the body of the report or as an appendix to the report in which case the a reference to the location of the auditors responsibilities is made in the report.
h) Other reporting responsibilities:-This section will have a clear heading "Report on other legal and regulatory requirements" or otherwise as appropriate. In this section, the auditor will address other reporting requirements different from the requirement of the ISAs.
I) Name of the engagement partner:-The name of the auditor partner responsible for the audit of the complete set of the financial statements will be included in the report. This is mandatory for audits of financial statements for listed companies. However, where such inclusion will lead to significant personal security threat to the partner, he will discuss the issue with those charged with governance not to include the name.
j) Signature of the auditor:- The auditor will sign the report as usual.
k) Auditor's address:- The auditor will indicate the location in jurisdiction where s/he practices.
l) Date of the report:- The date of the report will not be earlier than the date the auditor obtained sufficient appropriate evidence on the complete set of the financial statements and the date the appropriate authority approved the financial statements.
The IAASB issued a new standard ISA 701 and revised ISA 700, 705, 706, 570 and 260 to implement the new auditor's report.
I will like to hear your thought on the new auditor's report if you are a stakeholder.
Visit the IAASB website to get more details.
Sources:
1. Reporting on audited financial statements
2. Auditor Reporting - Fact Sheet
3. Final pronouncement - January 2015
