IAASB plans to restructure audit reports

The International Auditing and Assurance Standards Board (IAASB) has issued a new Invitation to comment (ITC) titled Improving the Auditor’s Report seeking feedback on a range of proposals designed to improve the information the audit report communicates to investors and other users. The proposals respond to criticism levelled during the global financial crisis that audit reports needed to be more useful, more clearly conveying information about key matters affecting the auditor’s work. This led the IAASB to adopt audit report reform as its highest priority project for 2012. The ITC is accompanied by an ‘At a glance document’ and is open for comment until 8 October 2012. The IAASB also plans a series of roundtables in New York, Brussels, and Kuala Lumpur during September and October 2012 to ensure it obtains widespread feedback on its preferred options for change and how these can be best instituted globally. More details on the project and on the planned roundtables are available on the project page.

The new ITC features a revised auditor’s report that illustrates the application of the IAASB’s suggested improvements and provides the IAASB’s rationale for these improvements, together with a discussion of their potential value and impediments. Its most significant proposals include:

  • A proposed new section in the auditor’s report, “Auditor Commentary,” through which the auditor may call attention to matters that are, in the auditor’s judgment, likely to be most important to the users’ understanding of the audited financial statements or the audit
  • New statements regarding going concern and other information in documents containing the audited financial statements, the description of the responsibilities of the auditor and key features of the audit itself, and 
  • Enhancements to the format of the report.

The changes proposed in the ITC are the board’s response to the feedback it received from its May 2011 consultation paper titled Enhancing the Value of Auditor Reporting: Exploring Options for Change. This feedback suggested that, as financial statements have become more complex and lengthy, an information gap has grown between them and the disclosures the auditor makes about them in the audit report. This gap makes it hard for investors to ascertain what judgments auditors may have made in their process of reaching their opinion and the focus on riskier areas. As a result investors  are seeking more information in the report about the audit process including key risks, areas of audit emphasis, critical accounting estimates, or how the auditor interpreted management’s judgements, such as those used in valuing hard-to-value assets.

The Institute will be submitting a response on these major reform proposals and has plans to conduct local roundtables to allow members to discuss these important reforms ahead of the comment close date. More details will be available in ANT and in the audit section of the Institute website as they are finalised. Members are encouraged to provide their views to the IAASB but comments for possible inclusion in the Institute submission to the ITC can also be emailed to Technical Submissions before 27 September 2012.

Article last updated 18 February 2013