Improving the Auditor's Report

IAASB Auditor ReportingRoundtable Improving the Auditor’s Report October 8, 2012 Kuala Lumpur, Malaysia Page 1

Welcome and Introductory Remarks Prof. Arnold Schilder, IAASB Chairman Page 2

Why Is the IAASB Suggesting Changes to theAuditor’s Report?• Reflections on today’s global economic challenges indicate that the auditor’s report could be more relevant and informative to users – Improved auditor reporting is essential to the continued relevance of the audit profession globally – Now is the time for change, but no clear agreement on what should be changed• Increased complexity in financial reporting and global business activity has increased users’ need for more information – Audit is valued, but the auditor’s report could be more informative – Users, in particular investors, want more relevant and decision-useful information about the entity, the financial statements and the audit• Important to now lay the foundation for the future of global auditor reporting and improved auditor communications – Creative solutions are needed to overcome challenges Page 3

IAASB’s Response• Auditor Reporting #1 priority – IAASB progressing revisions to auditor reporting standards, and other standards as appropriate, on an accelerated basis• Invitation to Comment (ITC) unanimously approved – Sets out the IAASB’s indicative direction and rationale, and describes the IAASB’s perspectives on value and impediments• ITC includes illustrative auditor’s report – New sections on Going Concern, Auditor Commentary, and Other Information – Most relevant information positioned first (e.g., auditor’s opinion) – Further improvements to:  Better explain an audit  Enhance transparency Page 4

Exploring a Global SolutionImportant to address differing perspectives on how best tocommunicate audit results in a manner relevant to users, whileallowing for comparable auditor reports Consistency in pursuit of achieving easily recognizable and comparable global auditor’s reports Relevance to enhance usefulness of global auditor reports, and accommodate jurisdictions’ laws and regulations Page 5

IAASB Auditor Reporting Project Status Commencement of Research & Standard Setting Consultation on Next Steps Consultation Indicative Direction Academic Invitation to Comment: research Improving the Auditor’s Exposure Draft (2006 – 2009) Project proposal Report (June 2013) (December 2011) (June 2012) Review of national Comments Due developments (October 8, 2012) /initiatives (2009-2010) Roundtables Final Standards Task Force and NY, Brussels & KL Consultation Paper: Subcommittee (June 2014) Enhancing the Value of Appointments (September – October 2012 ) Auditor Reporting (January 2012) (May 2011) Visit the Auditor Reporting Page at www.iaasb.org/auditor-reporting for updates Page 6

What Do We Need from You?• Your views will help inform the IAASB’s standard-setting proposals in a way that will best serve the public interest• Broad overarching considerations include − Do the suggested improvements increase the value of the auditor’s report? Why or why not? − What are the potential merits and drawbacks of the suggested improvements? Are there other alternatives that could be considered? − What additional considerations, if any, should be made for audits of SMEs (e.g., emerging growth companies) and public sector entities? − Should consistency continue to be a primary objective in auditor reporting? Page 7

Today• Three Sessions – Auditor Commentary – Dan Montgomery, IAASB Deputy Chair – Going Concern & Other Information – Merran Kelsall, IAASB Member – Transparency & Clarification – James Gunn, IAASB Technical Director• For Each Session – Introduction – Panelist remarks to stimulate debate – Roundtable discussion• Announcements – James Gunn, IAASB Technical Director Page 8

Auditor Commentary: Moving beyond Boilerplate Dan Montgomery IAASB Deputy Chair Task Force Chair Page 9

Why an Auditor Commentary Section?• Suggested new section aimed at improving communicative value of the auditor’s report• Highlights matters that are, in the auditor’s judgment, likely to be most important to users’ understanding of the audited financial statements or the audit• A vehicle for providing – A “roadmap” to help users better navigate complex financial reports – Additional context to the matters highlighted (e.g., explaining why the matter was important from an audit perspective or briefly describing the auditor’s procedures and findings) – Information about key judgments made by the auditor to provide more transparency regarding how the audit was conducted Page 10

More about Auditor Commentary• Entity-specific information, the nature and extent of which is determined based on facts and circumstances of the particular engagement• Leverages existing concepts of Emphasis of Matter and Other Matter paragraphs• Required for public interest entities (includes all listed entities)• Provided at the discretion of the auditor for other entities Page 11

What Could Be Addressed in Auditor Commentary?• Areas of high risk of material misstatement• Areas of significant management judgment, including the application of accounting policies• Significant or unusual transactions• Significant aspects of the audit scope and strategy• Difficult or contentious matters identified during the audit• Other matters discussed with those charged with governance/audit committee or required to be addressed by law or regulation Page 12

Auditor Commentary: Navigating a Way Forward Both value and impediments exist Essential to strike an appropriate balance ITC examples illustrate the concept of auditor commentary Page 13

Auditor Commentary (AC): Discussion Questions1. Is the concept of AC an appropriate response to the call for auditors to provide more information in auditor reports?2. Do the illustrative examples of AC deliver the informational value sought? If yes, how might this information be helpful in decision making? If not, what aspects are not valuable, or what is missing?3. Should an AC section be required for audits of all entities?4. Are there unique considerations for audits of non-public entities, in particular audits of SMEs?5. What risks and impediments exist to providing AC in the auditors report? How might they be overcome? Adapted from ITC Questions for Respondents Page 14

Auditor Commentary: Panelists Tan Sri Datuk Dr Abdul Samad Alias, Malaysia Venture Capital Jamie Allen, Asian Corporate Governance Association Julia Tay, Accounting & Corporate Regulatory Authority of Singapore Len Jui, China Auditing Standards Board and Global Public Policy Committee Sukanta Dutt, Malaysian Institute of Accountants, Auditing and Assurance Standards Board Hans Koopmans, PricewaterhouseCoopers Page 15

Auditor Commentary Roundtable Participants’ Views and Reactions Page 16

Auditor Commentary Len Jui China Accounting Standards Board/ Global Public Policy Committee IAASB Auditor Reporting Roundtable Kuala Lumpur, Malaysia October 8, 2012 Page 17

American:Such good food! Taste as if they arecooked by a French chef! Page 18

French:Only a French chef can cook suchgood food! Page 19

British:We don’t really care how the foodtastes…anything will taste goodafter several pints of beer! Page 20

Chinese:My cooking isterrible, but myguests honorme by finishingall the food Icooked! Page 21

Japanese：Culinary skillscannot only bejudged by the tasteof the food, butalso throughappreciating thechef’s artisticexpression! Page 22

Auditor Commentary (AC): Discussion Questions1. Is the concept of AC an appropriate response to the call for auditors to provide more information in auditor reports?2. Do the illustrative examples of AC deliver the informational value sought? If yes, how might this information be helpful in decision making? If not, what aspects are not valuable, or what is missing?3. Should an AC section be required for audits of all entities?4. Are there unique considerations for audits of non-public entities, in particular audits of SMEs?5. What risks and impediments exist to providing AC in the auditors report? How might they be overcome? Adapted from ITC Questions for Respondents Page 23

Auditor Commentary: Panelists Tan Sri Datuk Dr Abdul Samad Alias, Malaysia Venture Capital Jamie Allen, Asian Corporate Governance Association Julia Tay, Accounting & Corporate Regulatory Authority of Singapore Len Jui, China Auditing Standards Board and Global Public Policy Committee Sukanta Dutt, Malaysian Institute of Accountants, Auditing and Assurance Standards Board Hans Koopmans, PricewaterhouseCoopers Page 24

Auditor Commentary Roundtable Participants’ Views and Reactions Page 25

Going Concern & Other Information: Making theImplicit Explicit Merran Kelsall IAASB Member Task Force Member Page 26

Why a Going Concern Section?• The global financial crisis highlights the importance of timely financial reporting with an increased focus on entities’ assessment of going concern and related disclosures• Policy debates and proposals in response to the economic crisis, incl. EC proposals and UK Sharman report, suggest a need for transparency with respect to auditors’ work on going concern• Respondents to 2011 IAASB consultation asked for – Clarification of the respective roles and responsibilities of management and the auditor regarding going concern – Auditors to report the outcome of their work effort regarding going concern Page 27

Going Concern: Suggested Improvements• New reporting requirement for all auditor’s reports to include – A conclusion regarding the appropriateness of managements use of the going concern assumption; and – A statement regarding whether, based on the audit work performed, material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern have been identified• Makes explicit the auditor’s objectives and work effort required by the auditing standard (ISA 570)• Language would be tailored based on the applicable financial reporting framework Page 28

Going Concern: Suggested Improvements• New section is complemented by a new description of management’s responsibility with respect to going concern• Similar to current audit requirements, when a material uncertainty has been identified that is adequately disclosed in the financial statements, the auditor would draw users’ attention to such disclosure Page 29

More about Going Concern Improvements• Is there sufficient clarity as to the meaning of material uncertainties about going concern to support explicit statements in the auditors report?• Is there merit in auditors describing their rationale as to why material uncertainties do not exist?• Would it be desirable to disclose (possibly as part of Auditor Commentary) events or conditions that attracted significant audit attention even if the auditor concludes that no material uncertainties exist? Page 30

Why a New Section on Other Information?• Other Information – Includes financial and non-financial information (e.g., Management’s Discussion & Analysis (MD&A), Operating and Financial Review (OFR) Statements) – May address both historical and prospective information• Overwhelming majority of respondents to 2011 IAASB consultation indicated that including a statement about the auditor’s responsibilities regarding other information i) would increase transparency or ii) was already local practice• Strong support for some form of auditor conclusion with respect to other information Page 31

Other Information: Suggested Improvements andFuture Considerations• New “Other Information” section required for all audits where relevant• Statement as to whether, based on reading the other information, the auditor has identified material inconsistencies between the audited financial statements and other information• Auditor also required to explicitly identify the other information that was read Page 32

Going Concern & Other Information: DiscussionQuestions1. Do the suggested auditor statements related to going concern and other information provide useful information to users?2. What risks or impediments exist to providing these statements? How might they be overcome?3. What are your views about the placement of the new sections in the auditor’s report?4. Do you agree with the content and placement of the new description of management’s responsibilities with respect to going concern? Adapted from ITC Questions for Respondents Page 33

Going Concern & Other Information: Panelists Abdul Jalil Rasheed, Aberdeen Islamic Asset Management Nik Mohd Hasyudeen Yusoff, Audit Oversight Board Securities Commission (Malaysia) Ian Parker, KPMG Soo Yan Tan, Ernst & Young Page 34

Going Concern & Other Information Roundtable Participants’ Views and Reactions Page 35

Transparency & Clarification: Making the AuditMore Understandable James Gunn IAASB Technical Director Page 36

Why More Standardized Information about Audits?• Respondents to 2011 IAASB consultation − Supported including additional information in the auditor’s report to further describe the auditor’s responsibilities − Suggested that clarifying certain technical terms would contribute to narrowing the expectations gap and improve auditor reporting − Highlighted the important role that management and TCWG play in the financial reporting process• IAASB sees merit in more fully explaining the concept of a risk-based audit Page 37

Improvements Related to Transparency about theAudit• For all audits, required identification of engagement partner responsible for the audit − Proponents suggest this would provide engagement partner with greater sense of personal accountability − Already required in many jurisdictions − Possible impediments include a perceived reduction in firm responsibility and possible increased liability for engagement partner in certain jurisdictions, in particular the US• Explicit statement about the auditor’s compliance with relevant ethical requirements − No specific identification of the applicable ethical code• Information about the involvement of other auditors and an enhanced description of auditor’s responsibility in a group audit Page 38

Improvements Related to Clarifying Communicationsabout the Audit• Clarification of respective responsibilities of management and those charged with governance• Fuller description about the auditor’s responsibilities – Emphasizes the auditor’s responsibilities relating to fraud, internal control, accounting policies, financial statement disclosures, and accounting estimates – Should an option be provided to streamline the content of the auditor’s report by moving the description of auditor’s responsibility elsewhere (e.g., NSS website)?• Acknowledges and allows for variation in the description of the responsibilities of management and those charged with governance (e.g., directors) based on national laws or reg. Page 39

Transparency & Clarification: Discussion Questions  1. Should the auditor’s report identify the engagement partner responsible for the audit? 2. What are your views with regard to disclosures about the involvement of other auditors? Why is this information critical to your decision-making process? 3. Do the descriptions of the responsibilities of management / those charged with governance and auditors help your understanding an audit? 4. Should the description of auditor responsibilities be permitted to be placed outside of the auditor’s report (e.g., a website)? 5. What are your views on the revised format of the illustrative auditor’s report in the ITC, including ordering and placement? 6. To what extent should consistency continue to be a primary objective in auditor reporting?  Adapted from ITC Questions for Respondents Page 40

Transparency & Clarification: Panelists Prof. Paul Gillis, Peking University Guanghua School of Management Andrew Stringer, Institute of Chartered Accountants in Australia Handri Tjendra, Indonesian Institute of Certified Public Accountants-- Christina Foo, IFAC Small and Medium Practices Committee Tang Seng Choon, BDO Page 41

Transparency & Clarification Roundtable Participants’ Views and Reactions Page 42

Conclusion and Closing Remarks Ken Pushpanathan, MICPA President Prof. Arnold Schilder, IAASB Chairman Page 43

Improving the Auditor's Report

by International Federation of Accountants on Oct 19, 2012

Accessibility

Upload Details

Usage Rights

1 Embed 114

Statistics

Improving the Auditor’s Report Presentation Transcript