Whether and how the auditor’s report should change has been the subject of much debate since the financial crisis. The debates have moved beyond the merits of changing the model, to the shape of what auditor’s reports will become.
The International Auditing and Assurance Standards Board (IAASB) and the US Public Company Audit Oversight Board (PCAOB) released public consultations for new standards in July and August, respectively, which will come into effect in a few years. (In the UK, the Financial Reporting Council’s new auditor’s report came into effect in Q4 this year.) The IAASB’s comment deadline was 22 November. We highlight below some of the key points in our response letter.
- We strongly support enhancements to the auditor’s report that will address the needs of today’s users.
- With the practical refinements to IAASB’s proposed standards that we propose, we believe that the IAASB’s model can achieve the objective of relevant and valuable reporting.
- More informative auditor reporting will reaffirm the relevance and value of the audit to users, as well as support the robust dialogue about significant matters we have with those charged with governance and management.
- We believe that the proposal to introduce ‘key audit matters’ will be the most valuable enhancement, providing insight into the most significant financial statement areas involving complex estimates and significant management judgments from an audit perspective.
- The proposed requirements to identify them need some refinement to make clearer the judgment framework to select the matters. It is important to avoid reporting matters that inadvertently risk unintended market consequences and breaching the principle that the auditor’s report should not be the original source of information about the entity.
- We would be prepared to include the proposed new section regarding going concern but it may not provide the transparency optimal solution around going concern judgments users are seeking. The optimal solution would be for the auditors’ statements to be complementary to preparers’ explanation of the rationale for their going concern conclusion.
- We urge the IAASB to continue to liaise with the European Commission and work with the US PCAOB in finalising their respective reporting requirements.
See also our overview of all these developments which includes insight into what is being considered in the EU’s proposed Audit Directive and Regulation.