The FINANCIAL -- London ‑‑ After three years in development, the International Auditing and Assurance Standards Board (IAASB) has released a set of standards that are game-changing for shareholders and the profession, says PwC.
The standards mark a move to allow reports that are more informative, discursive and insightful. The new reports will undoubtedly stimulate enhanced conversations among auditors, companies, audit committees and shareholders.
Similar proposals have already been rolled out in the UK and auditors have embraced the transformation – producing insightful reports with tailored information and less jargon. Shareholder reaction has been very positive, referring to a ‘sea change’ in auditor reporting.
"The reporting rules now allow us to innovate within our public audit reports and begin to address the value and relevance of the audit. We are focussed on reinforcing trust in the audit so as to underpin confidence in reported financial information. Relevant reports from a relevant profession – that’s the opportunity,” said PwC Global Assurance Leader Richard Sexton.
The changes that the IAASB is introducing centre around three key aims: insight, transparency and improved readability.
Key audit matters
Without doubt, the most significant innovation in the new standards is the introduction of ‘key audit matters’ (ISA 701). This section will shed light on those matters that, in the auditor’s judgement, were of the most significance in the audit of the financial statements of the current period, according to PwC.
The main proposals to enhance transparency are to introduce an explicit statement regarding the auditor’s independence in all audit reports and to identify the engagement partner’s name in audit reports for listed entities. Both are already part of the auditor’s report in many parts of the world – but it is not the practice everywhere.
Under the new standards, the auditor’s report has been restructured to put audit and entity-specific information at the front of the report – in particular, putting the audit opinion first. Standardised wording in the report – such as the descriptions of the auditor’s responsibilities and what’s involved in an audit can be placed at the end of the report, or some might even decide to put it in an appendix or refer to a common website (such as that of a standard-setter or regulator).
Going concern will also be given more visibility in the auditor’s report. Both management’s and auditor’s responsibilities regarding going concern will be described in the new reports. When there is a material uncertainty about the entity’s ability to continue as a going concern, this will now be highlighted in a separate, clearly identified section of the report, according to PwC.
While the IAASB’s new standards are not effective until the end of 2016, auditors will need to hit the ground running. There are some daunting changes which will require careful navigation.
“The new standards will be as new to management, audit committees and users as they are to auditors. Around the world we will be on a learning curve – so I encourage stakeholders to give as much feedback as possible, good or bad, so that we can continue to improve the quality of our audit reports. Certainly investors in the UK seem to like this new and more informative approach. We are determined to build on this good start,” Richard Sexton said.