In brief: IAASB proposes fundamental changes to the auditor’s report (No. 2013-39)

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In brief 07/30/2013 by Assurance services
In brief: IAASB proposes fundamental changes to the auditor’s report (No. 2013-39)

At a glance

The IAASB proposal would require, among other matters, auditor's disclosure of key audit matters for listed entities and statements about going concern for all entities.

What's new?

On July 25, the International Auditing and Assurance Standards Board (IAASB) issued an exposure draft (ED) Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (the proposed ISAs) intended to enhance the future auditor’s report by increasing its communicative value to users. The proposed ISAs would require disclosures about key audit matters (KAM) and the engagement partner’s name in audit reports for listed entities, and statements about going concern and other information, among other matters, in all audits conducted in accordance with International Standards on Auditing (ISAs). The ED represents the culmination of IAASB deliberations to date on auditor reporting, including consultation papers in May 2011 and June 2012.

What are the key provisions?

Communicating key audit matters

A proposed new ISA, Communicating Key Audit Matters in the Independent Auditor’s Report, would require auditors of financial statements of listed entities to communicate in a separate section of their report those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. KAM are selected from matters communicated with those charged with governance. In determining which of the matters communicated to those charged with governance are KAM, the auditor should take into account areas of significant auditor attention in performing the audit, including:

  1. Areas identified as significant risks or involving significant auditor judgment
  2. Areas in which the auditor encountered significant difficulty during the audit, including with respect to obtaining sufficient appropriate audit evidence
  3. Circumstances that required significant modification of the auditor’s planned approach to the audit, including as a result of the identification of a significant deficiency in internal control

Going concern

A new “going concern” section of the auditor's report would be required which addresses the auditor’s conclusions related to whether management’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate, and whether a material uncertainty exists related to events or conditions that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern. If the auditor’s report states that the auditor has not identified a material uncertainty, a statement that neither management nor the auditor can guarantee the entity’s ability to continue as a going concern should also be included.

Other proposals

Other provisions of the proposed ISAs would require the auditor’s report to include, among other matters, the following information:

  • Disclosure of the engagement partner’s name (only for audits of listed entities)
  • A statement that the auditor is independent of the entity within the meaning of the relevant ethical requirements or applicable law or regulation and has fulfilled the auditor’s other responsibilities under those requirements
  • Reporting on the auditor’s responsibilities with respect to other information
  • An enhanced description of the auditor’s responsibilities

Who's affected?

Disclosures in the auditor’s report about key audit matters and the name of the engagement partner would apply to audits of financial statements of listed entities that are conducted in accordance with ISAs. The other reporting provisions would apply to all audits conducted in accordance with ISAs. The PCAOB is expected to issue their proposals on auditor's reporting, going concern, and engagement partner transparency by the end of the year, and it is most likely the IAASB proposal will influence the debate related to these topics.

What's the proposed effective date?

Assuming that the proposed ISAs are issued as final standards in the fourth quarter of 2014, a possible effective date for the standards may be for audits of financial statements for periods beginning on or after December 15, 2015, that is, for December 15, 2016 and later reporting periods. The IAASB is interested in views on whether an earlier effective date would be feasible, and whether early adoption should be permitted or encouraged.

What's next?

Comments on the ED are due on November 22, 2013. Questions for respondents have been included in the Significant Proposals section of the ED.


PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the National Professional Services Group (1-973-236-7800).

Authored by: 

Marc Panucci
Phone: 1-973-236-4885

James D. Anderson
Phone: 1-973-236-5738

Julie Anne Dilley
Phone: 1-646-471-3205