In January 2015, the International Auditing and Assurance Standards Board (IAASB) issued its new and revised auditor reporting standards, which require auditors to provide more transparent and informative reports on the companies they audit. These standards have been issued in response to demand from users of financial statements, in the wake of the financial crisis, for more relevant information on audits.
The aim of the standards is to produce auditor’s reports that increase the public’s confidence in both the audit process itself and the financial statements of companies. The IAASB also believes that enhancing auditor reporting will improve communications between the auditor and investors, as well as between auditors and those charged with governance.
“As a user, it can be challenging to understand what’s in the financial statements, let alone how they’ve been audited,” says Fiona Campbell, a partner in EY’s Australian assurance practice and a member of the IAASB. “The new auditor’s reports are therefore meant to enhance the understanding of the audit of the financial statements among users – investors, analysts, regulators, suppliers, employees and governments. It will give people a better understanding of what we do and how we do it.”
A number of interested parties responded positively to the exposure draft of the new auditor reporting standards when it was issued in 2013. A global accountancy body, the Association of Chartered Certified Accountants (ACCA), was broadly supportive, commenting: “The report of the auditor is the most visible output of the audit process, and we welcome this initiative of the IAASB to improve its usefulness and relevance to shareholders and other interested parties. The project will also promote financial reporting of the highest quality.”
Since the new standards apply (in many jurisdictions) to the audits of financial statements for periods ending on or after 15 December 2016, management, audit committees and auditors must start preparing for their implementation now.