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Auditor reporting – upping the communication value?

Sue Almond, ACCA technical director

By Sue Almond

Post financial crisis, investors have been particularly scathing of the binary 'pass/fail' nature of the auditor's report, and have consistently asked for more 'insight' from the auditor. This challenge has been picked up by regulators, with changes imposed in and planned in the US. The International Auditing and Assurance Standards Board (IAASB) has also been hard at work over the last couple of years to respond to the challenge and try to address the information value of the audit report.

In the UK, we are just starting to see the new-style audit reports and it is clear that they contain a great deal more information than ever before. But how long before this gets taken for granted and we hear cries of 'too much boilerplate'; how can auditors keep the content 'fresh'.

At this early stage, a huge amount of effort has been put by all involved into what should, and what should not, be said in the auditors report. A strong view coming from business is that it is not for the auditor to present 'original information' about the business in the audit report. So standard-setters are currently dancing around definitions of key, or critical, audit matters, significant risks, going concern disclosures, and so on, to provide some sort of framework.

This work is critical to setting the scope of the report, but it is only part of the solution. Individual auditors and audit firms have an opportunity to really differentiate themselves in the way in which they report. After all, the report is the end result of many hours of work, and may be the only visible output to the people who are ultimately responsible for the auditor's appointment. The report is a communication device - even a selling tool.

The way in which information is communicated is just as important as the content of the report. We need to entice users to actually read the report - and that means making it accessible. The skills of PR and communications specialists may be helpful to 'package' and present the key messages. Of course it is difficult to describe matters such as goodwill impairment in a totally non-technical way, but a 'plain English' approach could help. As could a more visual approach - could we see colour coded reports, text boxes, different fonts, and creative use of appendices, pictures and charts - even embedded videos or flashing lights on the internet?

These may seem a little flippant, but there is a chance to move away from the current sterile reporting and show the profession in a more engaged light. And a real concern already being expressed is the 'year 2' impact - how will the report look different, how will users understand the subtle changes from the previous year.

We could be at a watershed moment in auditor communication. Unleashed from the current rigidity, auditors may have the opportunity to exercise their creative side and really tell the story of the audit in an engaging way.

Sue's previous blog post
EU audit in song

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