January 23, 2015 Auditing standards
A report on the ICAEW website comments that the “accountancy profession has hailed as “game changing” the finalised international auditor reporting standards” which have been recently released. The new standards, which come into force in December 2016, have been drawn up in response to calls from investors and other users of financial reporting data to make audit reports more relevant and informed.
Whilst the days of auditors merely employing stock phrases to convey their findings are generally well behind us, investors still consider that audit reports are a little lacking both in the thinking behind and in the processes followed within the audit. The new audit report requirements therefore include such elements as:
- A new section which communicates key audit matters; ie those which in the auditor’s judgement were of most significance within the audit period. This change is to be compulsory for listed entities, voluntary for others.
- An opinion section to be presented followed by a basis of opinion section.
- Enhanced ‘going concern’ considerations including a description of the respective responsibilities of management and auditor with material concerns to be listed separately.
- Enhanced description of the responsibilities of the auditor and how the audit was conducted.
Although the changes will have a worldwide effect, the impact will vary from country to country. In the UK, responding to FRC requirements, auditors have been preparing enhanced reports since 2012 so the impact of the enhanced reporting requirements will be less than in some other countries. According to the ICAEW, research has shown that these new style reports have become required reading, especially among investors; showing that there is a clear appetite for enhanced disclosures.
Commenting on the new standards, IAASB chairman Arnold Schilder said “These changes will reinvigorate the audit, as auditors substantively change their behaviour and how they communicate about their work.” These behavioural changes will include an increased focus on collaboration between auditor and the organisation being audited as well as a greater emphasis on analysis which is carried out with a view to providing informed reports.
Although the changes don’t take effect until the end of next year preparatory work has already begun. The IAASB intends to publicise the new regime by focusing on “on promoting awareness, informing and educating users about the changes, and opening a dialogue to learn about the experiences of those responsible for adopting and implementing the standards.”