Page 1
The New Auditor’s Report and IAASB’s Work Plan
Dan Montgomery, Auditor Reporting Implementation Working Group Chair, Former Auditor Reporting Task Force Chair and IAASB Deputy Chair
Johannesburg, South AfricaOctober 12, 2015
Page 2
I. The New Auditor’s Report
Page 3
Why Change the Auditor’s Report?
• Foundation for the future of global auditor reporting and improved auditor communications
• Essential to the continued relevance of the audit profession globally– Audit opinion is valued, but could be more
informative– Users want more relevant and decision-useful
information about the entity and the financial statement audit
Page 4
New and Revised Auditor Reporting Standards – Key Features
Aud
itor R
epor
t Audit Opinion – Required to be presented first
Key Audit Matters – Required for listed entities
Going Concern – Additional focus
Other Information – New section
Responsibilities – In the audit; Independence and ethical obligations; Engagement partner (listed entities)
Page 5
Expected Benefits of the New Auditor’s Report
• Enhanced communicative value to users• More robust interactions and communication among
users, auditors and those charged with governance (TCWG)
• Increased attention by management and TCWG to the disclosures referred to in the key audit matters (KAM) section of the auditor’s report
• Increased professional skepticism in areas where KAM are identified
• Increased audit quality or users’ perception of audit quality
Page 6
Decision-Making Framework for Determining KAM
Matters that were communicated with TCWG
Matters that required significant auditor
attentionMatters of most significance in the audit Key Audit
Matters
Page 7
Initial Step in Determining KAM
The auditor will always consider • Areas of higher assessed risks of material
misstatements or significant risks (i.e., risks requiring special audit consideration)
• Significant auditor judgments relating to areas of significant management judgment (e.g., complex accounting estimates)
• Effect on the audit of significant events or transactions
Matters that were communicated with TCWG
Matters that required significant auditor attention
Page 8
Determination of Matters of Most Significance in the Audit – KAM
• KAM is determined by the auditor’s consideration of the– Nature and extent of communication with TCWG– Importance to intended users’ understanding of the financial statements– Nature and extent of audit effort needed to address– Nature of the underlying accounting policy, its complexity or subjectivity– Nature and materiality, quantitatively or qualitatively, of corrected and
accumulated uncorrected misstatements due to fraud or error (if any) – Severity of any control deficiencies identified relevant to the matter (if any)– Nature and severity of difficulties in applying audit procedures, evaluating the
results of those procedures, and obtaining relevant and reliable evidence
Matters that required significant auditor attention
Matters of most significance in the audit
Page 9
KAM – What They Are, and What They are Not
• The auditor’s perspective on matters of most importance to the audit
• A concise summary of important audit matters versus more detailed and robust discussions with TCWG (e.g., the audit committee)
• NOT a replacement of or supplement for management’s perspective embodied in the financial statements and disclosures
• NOT a scorecard on management’s performance or the relative aggressiveness or conservatism in management’s accounting policies or judgments
Page 10
KAM – Delivering Entity-Specific Information to Users
Consistency and
Comparability
Relevance and Usefulness
Boilerplate; generic language;not relevant to the entity or the audit
Entity- and audit specific information of increased value
Page 11
Are KAM Always Communicated in the Auditor’s Report?
• Auditor is required to include each KAM unless– Law or regulation precludes disclosure– In extremely rare circumstances, the auditor determines that the
matter should not be communicated Adverse consequences of communicating the KAM would reasonably be
expected to outweigh the public interest benefits of such communication
• In certain limited circumstances, there may be no KAM to be communicated
• Concepts of EOM and OM paragraphs are retained – EOM and OM paragraphs cannot be used as a substitute for
communicating a matter determined to be a KAM
Page 12
Enhanced Auditor Reporting on Going Concern
• Changes to ISAs and the auditor's report to focus more on GC– Explicit description of the respective
responsibilities of management and the auditor in all auditor’s reports
– Separate GC section required when material uncertainty exists, with a heading “Material Uncertainty Related to Going Concern”
– New requirement to challenge adequacy of disclosures for GC “close calls”
Page 13
Interaction Between KAM and Going Concern (GC)
• Matters relating to GC, including “close calls”, may be determined to be KAM and communicated in the auditor’s report in accordance with new ISA 701
• When a material uncertainty related to GC exists, it is by nature a KAM, but is reported separately in the “Material Uncertainty Related to Going Concern” section of the auditor’s report
More information about GC is available in the Auditor Reporting Toolkit at: www.iaasb.org/auditor-reporting.
Page 14
Other Changes to the Auditor’s Report
• Auditor’s opinion required to be presented first • Required Basis for Opinion section for unmodified
opinions• Statement about independence and other ethical
responsibilities• Naming of the engagement partner (listed entities only)• Enhanced description of auditor responsibilities and key
features of the audit • Required identification section when TCWG are
separate from management
Page 15
New Webpage www.iaasb.org/auditor-reporting with easy access to new and revised standards and other resources
• Auditor Reporting Fact Sheet • Auditor Reporting “At a Glance”• Basis for Conclusions• Publications on GC and KAM • Illustrative KAM examples • Plans for webcasts, podcasts and other
potential publications
Resources – Auditor Reporting Toolkit
Page 16
• IAASB-supported “roll-out plan” with objectives of– Promoting awareness– Informing and educating users– Learning about experiences of those responsible for adopting and
implementing the standards– Preparing for post-implementation review
• Planned activities – Outreach and other communications– Auditor Reporting Toolkit
Implementation Support
New and revised Auditor Reporting standards are effective for periods ending on or after December 15, 2016
Page 17
II. IAASB Work Plan – Enhancing Audit Quality
Page 18
Enhancing Audit Quality
• Clarified ISAs and ISQC 1 serve fundamental role in underpinning audit quality, need to evolve in response to – Changes in business environment– Firm’s business models (structures; organization of audits)– ISA Implementation Monitoring findings and other feedback on
current practices– Audit inspection findings– Outreach and other interactions
Key Strategic Objective: Ensure that ISAs continue to form the basis for high-quality, valuable and relevant audits conducted worldwide by responding on a timely basis to issues noted in practice and emerging developments
Page 19
Work Plan for 2015–2016 ― Priority ProjectsThe IAASB in the Coming Years
2015: (1) Intense exploration, research and outreach One discussion
paper (ITC); (2) Project proposal related to ISA
540
2016: Analysis of comments and dialogue Proposals for
standard setting and other guidance
Enhancing Audit Quality with a Clear Public Interest Perspective
Quality Control
Group Audits
ISA 540, Incl. FI
Professional Skepticism
Page 20
Timing―ITC
• Issuance of ITC (Quality Control; Group Audits; Professional Skepticism) – Dec 2015; Comment period of 150 days ending May 2016; outreach events held while ITC is out for comment and possibly after
• Comment analysis and discussion – May 2016–Sept 2016
• Approval of project proposals (Quality Control and Group Audits), and decision on IAASB way forward re: Professional Skepticism – Sept 2016
• Development of Exposure Drafts (Quality Control and Group Audits) – Sept 2016–mid-2017
Page 21
• Project proposal for holistic revision of ISA 540 planned for December 2015– Commitment to standard-setting activities to commence
immediately • Project update planned for Dec 2015/Jan 2016 to
– Raise awareness of challenges likely to be encountered by auditors and preparers with respect to IFRS 9
– Alert auditors and other interested parties to the IAASB’s work in this area and its consideration of the relevant issues
– Highlight how the extant ISAs and other material addresses the audit issues in relation to IFRS 9 (for FIs and other entities)
IAPN 1000 also relevant– Signal the IAASB’s plans with respect to the issues that are likely to
be addressed in the revision of ISA 540 and the proposed timeline
Timing―ISA 540, Including Audits of Financial Institutions
Page 22
• Monitoring of identified and emerging developments in audit, assurance and related services and provide recommendations to the IAASB on topics to be pursued– Data analytics and the effect on the audit, including whether ISAs
could be viewed as restricting innovation – Integrated reporting, including the demand for assurance on
integrated reports • Services other than audits, in particular for SMEs
– “Hybrid engagements” and how agreed-upon procedures may be used in connection with other services, including the IAASB’s recently revised review and compilation standards
Preparing for the Future
www.iaasb.org
Top Related