Walking the tightrope: IAASB seeking balance between relevance and consistency in auditor reporting

The International Auditing and Assurance Standards Board (IAASB) is facing a daunting challenge – how to make auditor reporting consistent and comparable globally while accommodating national reporting regimes.

Given the rapidly expanding global use of International Standards on Auditing (ISAs), used in Canada since 2010, the International Auditing and Assurance Standards Board (IAASB) is facing a daunting challenge – how to make auditor reporting consistent and comparable globally while accommodating national reporting regimes.

A number of jurisdictions are exploring enhancements to auditor reporting; including the U.S. Public Company Accounting Oversight Board (PCAOB) and the U.K. Financial Reporting Council (FRC) (see my earlier post on the EU Audit Proposals). They all have an overriding goal – reports that better meet the information needs of users. But they are not necessarily doing so in the same way. So the IAASB is developing a new model to enhance the value of the auditor’s report using common and essential content that also accommodates different local needs. After all, when auditors around the world use ISAs to conduct their audits you would expect their reports to look and feel the same, wouldn’t you?

But it’s not just about international comparability; some also question whether the auditor needs to say more in the report for a listed entity than for a smaller entity, such as a not-for-profit organization. Up to now, the reports for all entities have been the same, but should they in the future?

The IAASB has broken down its project into four key areas, all designed within the current scope of an audit:

  • Building blocks: An approach designed to create flexibility by describing “core” elements appropriate for all entities and “conditional” elements required for some entities, based on their type, but allowing national standard setters the ability to further prescribe the level of detail needed.
  • Auditor commentary: Required in auditor’s reports for listed entities, and possibly also for “public interest entities”, that would include, for example, discussion about matters in the financial statements or that involve significant audit emphasis. Hopefully a move away from boilerplate to entity-specific auditor insights.
  • Going concern and other information: Expand what the auditor reports about an entity’s ability to continue as a going concern and the auditor’s involvement with information in documents containing audited financial statements (such as the Management Discussion & Analysis).
  • Clarifications and transparency: Address a common complaint that the report currently compromises a lot of technical audit-speak by explaining key elements of an audit in layman’s terms and improve transparency about the audit process.

Keep the conversation going…Canada already supports the ISAs, so do you think these changes might work for us and provide balance between global and national reporting requirements? Read more about the IAASB’s project and the PCAOB and FRC proposals, and let me know what you think. 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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