Vancouver talks about enhancing investor confidence in information beyond financial statements

A stakeholder forum hosted recently in Vancouver provided the AASB with critical insights on the auditor role beyond financial statements for investors, to ensure the continued relevance and value of audits.

Investors, audit committee members, financial statement preparers and auditors from the Vancouver area provided forthright views to the Auditing and Assurance Standards Board (AASB) at an outreach session in October 2017.

The session focused on understanding: the information investors use in making their investment decisions, securities regulatory developments in this area and new auditor reporting standards. The goal was to explore whether there is a role for the auditor with respect to information investors use beyond the financial statements, and the merits of the new reporting standards.

Investor perspective

Richard Talbot from the Toronto Chapter of the CFA Society provided an investor perspective, highlighting that the audited financial statements only account for about 20 per cent of the information investors use to make their decisions. The rest is from Management Discussion & Analysis, press releases, analyst calls with management and investor information packages. Richard emphasized that investors rely on key performance indicators because they find it a quick way to focus in on an entity’s performance. However, often this information is not consistent, comparable, reliable or well-disclosed. Further, investors are not clear on the nature and extent of management, audit committee, auditor and regulatory involvement with that information – a critical expectation gap.

Regulatory perspective

Carla Marie Hait, chief accountant at the British Columbia Securities Commission, spoke about a Canadian securities administrators project to upgrade to a rule its Staff Notice 52-306 ¬– dealing with non-GAAP financial measures – in response to persistent regulatory findings and concerns. The project is considering the scope of measures to be captured by the rule, clarifying terminology and the possible effects on certifications of controls. Carla Marie also provided an update on two other CSA projects: reducing regulatory burden and audit committee reporting.

The auditor’s role

Darrell Jensen and Fred Pries, chair and vice-chair of the AASB, explained the auditor’s current role with respect to other information and how that is changing under the new auditor reporting standards. They also addressed preliminary results of a review of new auditor reports on the financial statements of smaller listed Australian entities.

Polling results

A report will be coming from the AASB in due course. But in the meantime here are some highlights from some of the polling questions:

  • more than 90 per cent agree that the investor expectation gap is an issue that should be given high priority
  • more than 70 per cent believe that reliability of information and the ability to compare it with competitors are the most important attributes that need to be addressed
  • more than 60 per cent believe that the CSA rule should be broader than non-GAAP financial measures (i.e., it should apply to other operational measures), but more than 70 per cent believe
  • that a CSA rule is not the only solution
  • more than 50 per cent call for standardized industry measures to be developed by industry participants
  • forty per cent believe that the AASB should focus on assurance standards around processes to develop and approve other information, with a further 45 per cent believing that the AASB needs to perform further study first
  • there were mixed views on the value of Key Audit Matter reporting in the new auditor’s report. While nearly 50 per cent think it will be of value to investors, 25 per cent are undecided and 25 per cent disagree. So more evidence is needed.

Next steps

The discussions in Vancouver provided a forum for the AASB’s stakeholders to provide frank views directly to the AASB on matters that are important to them. Staff are analyzing the results for the AASB as part of upcoming discussions of the AASB’s operating plan for next year. This is one more way that the AASB is increasing its focus on developments to ensure the continued relevance and value of audits in Canada.

Keep the conversation going

Do you agree that there is an investor expectation gap? Do you think auditors should be more involved with information beyond the financial statements? Will this enhance the value of audit?

Post a comment below; or email me directly.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada