Auditor Reporting PowerPoint Presentation Slides

American Institute of CPAs

Auditor Reporting


Auditor Reporting Task Force

Mike Santay, Chair

Jan Herringer

Carol McNerney

Marc Panucci

Chris Smith

Mike Westervelt (representing TIC)


Exposure Draft Issued

IAASB Exposure Draft:

• Proposes amendments to:

- ISA 700 (Revised) Forming an Opinion and Reporting on

Financial Statements

- ISA 705 (Revised) Modifications to the Opinion in the

Independent Auditor’s Report

- ISA 706 (Revised) Emphasis-of-Matter Paragraphs and

Other-Matter Paragraphs in the Independent Auditor’s

Report

- ISA 260 (Revised) Communication with Those Charged with

Governance

- ISA 570 (Revised) Going Concern

• Creates a new proposed ISA 701 Communicating Key Audit

Matters in the Independent Auditor’s Report


Revisions to ISA 700

Ordering of elements within the report not mandated

• But illustrative report represents IAASB’s preferred presentation,

and requirements in ISA 700 structured this way (for example,

opinion paragraph first)

Auditors permitted to include description of the

auditor’s responsibility in an appendix to the

auditor’s report or to refer to description on the web

site of an appropriate authority



New section ―Basis for Opinion‖ that includes a

statement that the auditor is independent of the

entity within the meaning of the relevant ethical

requirements or applicable law or regulation and has

fulfilled the auditor’s other ethical responsibilities

under those ethical requirements

New heading ―Responsibilities for the Financial

Statements‖



Auditor’s Responsibilities for the Audit of the

Financial Statements section to now include:

• Statement that the objectives of the audit are to issue an

auditor’s report that includes an opinion

• A statement that reasonable assurance is a high level of

assurance, but is not a guarantee that an audit conducted in

accordance with ISAs will always detect a material misstatement

when it exists

• Misstatements can arise from fraud or error and are considered

material if, individually or in the aggregate, they could

reasonably be expected to influence the economic decisions of

users taken on the basis of these f/s.



New content to describe an audit by stating the

auditor’s responsibilities

Inclusion of the name of the engagement partner for

listed entities only

New sections for:

• Going concern (report in accordance with proposed ISA 570)

• Key Audit Matters (report in accordance with proposed ISA 701)

• Other Information (report in accordance with proposed ISA 720)


Key Audit Matters (KAM)

New section titled Key Audit Matters (KAM) to be

required in the auditor’s report for listed entities

(ISA 701) and applies to audits of general purpose

financial statements

Does not preclude auditors of entities other than

listed entities from including KAM (unless prohibited

by law or regulation)

KAM is defined as those matters that, in the

auditor’s professional judgment, were of most

significance in the audit of the financial statements

of the current period and are selected from matters

communicated with TCWG


KAM- Determination

KAM are taken from the pool of communications to those

charged with governance and could include:

• Areas identified as significant risks in accordance with ISA 315

or involving significant auditor judgment

• Areas in which auditor encountered significant difficulty during

the audit including with respect to obtaining sufficient

appropriate audit evidence

• Circumstances that required significant modification of the

auditor’s planned approach to the audit, including as a result of

the identification of a significant deficiency in internal control


KAM -Reporting requirements

Description of key audit matters in KAM section of the

report using appropriate subheadings for each matter

Include why auditor considered the matter to be one of

most significance in the audit, and its effect on the audit

A reference to management’s disclosure about the matter

in the f/s, if applicable

Includes standard wording about KAM

When applicable, explicit statement that the auditor

determined there were no KAM to report

Required to determine and communicate KAM for a

qualified or adverse opinion, prohibited for disclaimer of

opinion



Include requirement that the auditor’s report should

not include KAM when the auditor disclaims an

opinion

Revised wording for describing the auditor’s

responsibilities for the financial statements when

the auditor disclaims an opinion

• Revised to include a statement that the auditor’s responsibility is

to conduct an audit of the Company’s f/s (rather than express an

opinion)



New requirement to include a statement that the

matter included as an EOM or OM paragraph has not

been determined to be a KAM

Provides application material on the placement of

EOM and OM paragraphs in the auditor’s report



Revises the communication of the planned scope

and timing of the audit to also include the significant

risks identified by the auditor

Requires the auditor to communicate with TCWG

circumstances that required significant modification

of the auditor’s planned approach to the audit,

including significant difficulties, if any, encountered

during the audit


Auditor Reporting - Proposed Next Steps

August- launch AICPA Survey

• Increase awareness for members on the IAASB’s auditor

reporting exposure draft

• Solicit feedback from members to shape ASB’s comment letter

to IAASB on the ED

October – ASB meeting

- Discuss preliminary results of feedback and confirm ASB

views on proposal

January – ASB meeting

- Discuss views/issues noted in IAASB comment letters

- Review proposed areas for revisions to AU-C 700 and

related sections impacted by the ED


Going Concern


Going Concern Task Force

Marc Panucci, Chair

Jennifer Haskell

Anil Kumar (representing TIC)

Mike Santay

Chris Smith


Going Concern

There are various initiatives underway by standards

setters addressing the issue of Going Concern

• Audit Standards Setters

- IAASB

o ED approved at the June meeting. Comment period

ends sometime late November.

- ASB

- PCAOB

• Accounting Standards Setters

- FASB

o ED issued in June. Comment period ends Sept. 24

- IASB


Going Concern—IAASB

GC initiative is part of the IAASB’s Auditor’s Report

Project.

Based on responses to the Invitation to Comment

who called for the auditor to make an explicit

statement in the opinion about the appropriateness

of management use of the GC assumption.

Responders also called for the issue of GC to be

addressed holistically, that is, auditors alone should

not provide the answer.


Going Concern—IAASB

Auditor Reporting and Conclusions will consist of

two statements:

1. Appropriateness of management’s use of the GC basis of

accounting, and

2. Conclusion whether a material uncertainty exists related to

events or conditions that may cast significant doubt about the

entity’s ability to continue as a going concern


Going Concern—ASB

Redrafted AU 341 without making significant

changes beyond redrafting.

Due to awaiting FASB to act on the issue in order to

undertake revisions to AU 341.


Going Concern—FASB

Management would be required to provide disclosures

about existing events or conditions that indicate either of

the following:

• More likely than not that the entity will be unable to meet its

obligations within 12 months after the financial statement date or

• Known or probable that the entity will be unable to meet its

obligations within 24 months after the financial statement date

Disclosure requirements would be “gross,” that is before

taking into account management’s plans that are outside

the ordinary course of business to mitigate the

conditions or events that give rise to the material

uncertainties.



Issuers would also be required to disclose in the notes

to the financial statements that there is substantial doubt

about a company’s ability to continue as a going

concern when the likelihood of the company’s inability to

meet its obligations within 24 months after the financial

statement date becomes probable.

Disclosure requirements would be “net,” that is after

taking into account management’s plans to mitigate the

conditions or events, including those outside the

ordinary course of business, that give rise to the material

uncertainties.



The exposure period ends September 24, 2013.

The effective date will be determined after the FASB

considers the feedback on ED.

FinRec is taking the lead in writing the AICPA’s comment

letter. The ASB is represented in the task force.


Going Concern—IASB

The IASB is considering limited amendments to IAS 1.

Preliminary discussions of:

• Retaining the guidance relating to the going concern basis

• Including disclosure requirements by management about what

to disclose with respect to material uncertainties

• Retaining the term “significant doubt”


Going Concern—Issues

The following are the issues previously discussed with the

AITF and the ASB:

• FASB’s proposal that nonissuers would not be required to

make a substantial doubt assertion?

• If FASB proposal stays, what are the views on the auditor’s

report including a mandatory EOM? Should an EOM address

substantial doubt (assuming there is no accounting standard

that requires such for nonissuers)?

• The IAASB is proposing the inclusion of two explicit statements

1) appropriateness of management’s use of the going concern

assumption and 2) making a conclusion with respect to material

uncertainties. What are the views about requiring such

statements in all cases?


Going Concern—Proposed Next Steps

October

- Discuss issues arising from FASB comment letters

especially related to substantial doubt disclosure of

nonissuers

January

- Discuss issues arising from IAASB comment letters

- Issue paper and/or first draft of Revised AU-C 570

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