Mandatory auditor commentary – the IAASB moves away from audit report boilerplate

The International Auditing and Assurance Standards Board (IAASB) is consulting on significant changes to the auditor’s report, but will investors learn what many really want to know – what the auditor and the audit committee discuss behind closed doors?

The International Auditing and Assurance Standards Board (IAASB) is consulting on significant changes to the auditor’s report, but will investors learn what many really want to know – what the auditor and the audit committee discuss behind closed doors?

Auditor reporting is a key project for the IAASB because it addresses the auditor’s primary means of communicating with an entity’s stakeholders. A major project step has been the Invitation to Comment on improving the auditor’s report the IAASB issued at the end of June. It’s actually an easy read with no overly technical language (yes, I am serious).

On the premise that a quality audit should be accompanied by an informative report that delivers value, the Invitation to Comment proposes significant changes that would move the report away from the standardized pass/fail one pager to one that provides more information about the entity, the financial statements and the audit of that entity. Yes, the report will be longer than you are used to; potentially much longer if you are a “public interest entity” because the report must include an “auditor commentary” of matters the auditor thinks are likely to be most important to users. If you want to see what it looks like, the Invitation to Comment includes an illustrative example – you will be in for a big surprise let me tell you.

In grappling with different options, the IAASB used a value and impediments model focusing on areas of high value and a low level of impediments. It has done so bearing in mind important guiding principles, two key ones of which are: maintain the current scope of an audit, and preserve the separate responsibilities of management, the audit committee and the auditor.

But the bottom line, and a key question the IAASB is seeking input on, is: do the proposals address information demands? Some users might have been hoping that auditors would publicly spill the beans on the discussion with the audit committee – they will probably be disappointed. Others will view the IAASB proposals as a step in the right direction. Still others will argue that the auditor’s report is not the solution to deficiencies in financial statements that do not present a clear and complete picture of the entity and its operations. One thing is certain; developing proposed new reporting standards over the coming year is not going to be easy for the IAASB.

But would the proposals work in Canada? The IAASB believes it has provided flexibility to allow the proposals to work in all jurisdictions, and for all types of entity. The Auditing and Assurance Standards Board (AASB) will likely want to know whether you agree. So take the opportunity to contribute your two cents. See the AASB website for more information.

Keep the conversation going…take a look at the IAASB’s Invitation to Comment and let me know what you make of the proposed longer report. I would particularly like to know what investors think about it. After all, it’s meant for you.  Email me directly.

Eric

Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.


About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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