• Register
Return to: Home > Comments > Auditor reporting

Auditor reporting

The International Auditing and Assurance Standards Board (IAASB), the audit profession's peak global standard setter, has just released a blueprint for the most significant changes to the audit profession's communication with investors in decades.

The proposals include a new standard, ISA 701 Communicating Key Audit Matters in the Independent Auditor's Report and a number of revisions to existing ISAs, including ISA 700, Forming an Opinion and Reporting on Financial Statements.

The exposure draft has been years in the making and is the result of the IAASB's outreach with investors and other key stakeholders. But what does this really mean for investors and what can they expect from the proposed changes?

Far from being an end point, a new set of auditor reporting standards will mark the beginning of the most challenging part of this journey - implementation. While offering much promise, the IAASB's proposals are a stretch for a profession which has already undergone extensive regulation and re-regulation in recent times.

The crux of the draft standards is that auditors would no longer solely attest to a company's financial report, but they would take on the role of providing their own narrative on key matters in the audit. In adopting this change, the IAASB essentially provides a blank canvas within the audit report. The value and effectiveness of these changes for investors will depend on how that canvas is painted - a fundamental shift and challenging undertaking for auditors who are handed the palette and brush.

Enhanced auditor reporting could go toward addressing expectation gaps related to the audit role from both sides: providing more accessible insights into the work of auditors, and an enhancement in the role itself. At the same time, in removing the simplicity of the current binary form audit report - which provides a 'yes' or 'no' on the financial statements - there is a risk that misaligned expectations could be exacerbated. Once again, the proof will be in the pudding, or on how the additional narrative space within the audit report is used.

A recent enquiry of the UK Competition Commission into the UK statutory audit market highlighted the importance of shareholder engagement in the appointment of auditors. Enhancing auditor reporting may serve to enable a greater degree of engagement, and could see firms competing to provide in their report more relevant, understandable and clearer information for shareholders.

The auditor's core role, their opinion on financial statements, comes attached to significant legal and professional accountabilities. There is a precision in the language used within current standardised auditor reports that could be impacted by introducing a more freeform model. Auditors will face the challenge of balancing their accountabilities whilst also presenting reports that are not only informative, but which bridge from often technical language to communicate in a way that is accessible to a diverse range of stakeholders.

The audit profession in Australia has already begun field testing the draft standards. To be at this point is a mark of the auditing profession's strength. As firms in Australia complete their 2013 June year-end audits, there is already a swelling of activity that anticipates how the exposure drafts would apply, and what potential issues and practical complications could arise.

This is a clear effort by IAASB to enhance how investors are informed and a genuine step forward. The ultimate measure of this shift will be the value investors place on these enhancements. With the consultation period set to close on 22 November 2013, I urge the profession to use this time to focus on how to overcome the challenges and how to enhance auditor reporting toward the needs and perspective of those using the reports.

Alex's previous blog post

Financial reporting - UK GAAP gets a much needed makeover

Top Content

    Addressing tax challenges and the digitisation of the economy

    As the economy becomes even more globalised through digital sources, the tax systems currently in place need to be scrutinised to examine whether they are still fit for current and emerging business models. Joe Pickard reports on the OECD’s approach to this issue.

    read more

    Primary financial statements: a game changer in reporting?

    International Accounting Standards Board chair Hans Hoogervorst delivered a speech at the Seminario International sobre NIIF y NIF, organised by the Consejo Mexicano de Normas de Información Financiera in Mexico. The Accountant presents the highlights.

    read more

    FASB readies standards for the netflix generation

    The US Financial Accounting Standards Board (FASB) has updated its accounting standard for entertainment, with a specific eye on keeping up to date with how episodic content, such as television programmes, is consumed in the modern world. Jonathan Minter reports.

    read more

    Brexit: why it takes two to tango

    Former TA editor Vincent Huck, now editor of Insurance Asset Risk, looks at why Brexit might unleash geopolitical intrigue in Europe’s accounting standard-setting scene – and why IFRS 17 will be an incredible source of opportunity for firms in the coming years.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.