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Auditor's Report Proposal
Auditor's Report Proposal
http://www.nzica.com/News/Archive/2013/November/Proposals-for-auditor-reporting.aspx?p=1 1/5
Key audit matters are defined as those matters that, in the auditors professional judgement, are of
most
significance in the audit of the financial statements of the current period. Although this is a matter of
professional
judgement, the focus should be on areas of significant auditor attention, including:
a) areas identified as significant risks or involving significant auditor judgement
b) areas in which the auditor encountered significant difficulty during the audit, including with respect to
obtaining
sufficient appropriate audit evidence
c) circumstances that required significant modification of the auditors planned approach to the audit,
including as
a result of the identification of a significant deficiency in internal control.
Matters giving rise to a modification of the auditors opinion are, by their nature, key audit matters, but
are to be
reported separately in the Basis for Qualified (or Adverse) Opinion section of the auditors report. When
the
auditor disclaims an opinion, proposed ISA 705 (Revised) Modifications to the Opinion in the
Independent
Auditors Report prohibits the auditor from including additional information on key audit matters, going
concern1/3/2015 Proposals for auditor reporting
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or other information.
The IAASB is of the view that changes in auditor reporting may have positive benefits on audit quality, or
users
perceptions of it
The concept of key audit matters is relative, so it is likely there will always be one or more matters of
most
significance in an audit. However, the IAASB accepts it is conceivable that there may be certain limited
circumstances in which there are no key audit matters. In this case proposed ISA 701 requires a
statement in the
auditors report that there are no key audit matters, to signal that the auditor has still made this
determination.
The communication of key audit matters in accordance with proposed ISA 701 represents a particularly
to independence. This has been changed to require an explicit statement that the auditor is
independent of the
entity and has fulfilled the auditors other relevant ethical responsibilities, with disclosure of the
source(s) of those
requirements. This is similar to disclosing that the audit was conducted in accordance with ISAs or that
the
financial statements were prepared in accordance with IFRSs. The statement relating to independence is
required
to be placed in the Auditors Responsibilities for the Audit of the Financial Statements section rather
than the
Basis for Disclaimer of Opinion section as originally proposed.
In the New Zealand environment, relevant ethical requirements comprise NZICAs Code of Ethics, and
the
New Zealand Auditing and Assurance Standards Board (NZAuASB) PES 1 Code of Ethics for Assurance
Practitioners. However, there may be challenges around what such a disclosure would comprise in the
context of
complex group audit situations.
In the absence of established thresholds for what may constitute either a minor or a significant breach
of
independence, the IAASB decided against requiring public disclosure of breaches of independence
requirements
by the auditor.
Engagement partner
Rather than require disclosure of the name of the engagement partner for all entities as suggested in
the ITC, the
IAASB has concluded it would be appropriate to limit the requirement in proposed ISA 700 (Revised)
Forming
an Opinion and Reporting on Financial Statements to audits of financial statements of listed entities,
along with
the inclusion of a harms way exemption. It is believed this would provide the engagement partner
with a1/3/2015 Proposals for auditor reporting
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greater sense of personal responsibility and accountability, which would translate to improved audit
quality.
Form of report
It was suggested in the ITC that the IAASB would mandate the ordering and placement of the required
elements
in the auditors report. As a result of feedback from respondents to the ITC, the IAASB reconsidered its
position (with the exception of the introductory paragraph). However, specific headings are still required
in the
auditors report to ensure the required reporting elements can be recognised.
The IAASBs preferred ordering and placement of the required auditor reporting elements is highlighted
through
the illustrative auditors reports in the appendix of ISA 700 (Revised) to encourage consistency in
presentation.
Other information
The IAASB continues to pursue auditor reporting on other information, and is currently in process of
considering
comments on the exposure draft of proposed ISA 720 (Revised) The Auditors Responsibilities Relating
to
Other Information in Documents Containing or Accompanying Audited Financial Statements and the
Auditors
Report Thereon. These elements of proposed ISA 700 (Revised) will be finalised when the revision of ISA
720
is completed, so that reporting on other information will come into effect at the same time as the other
enhancements addressed by the proposed ISAs.
What does this mean for us?
Ultimately it will be up to the NZAuASB to decide which entities any changes made to the auditor
reporting
model will apply to. The NZAuASB is proposing that a New Zealand ED run separately but in parallel with
the
IAASB ED to expose the changes required to the IAASB proposals as a result of legislative requirements
and
the new accounting standard frameworks in New Zealand. However, the international proposed
amendments to
auditor reporting will be adopted in New Zealand should the IAASB finalise the standards on auditor
reporting
as proposed in the ED and there are no compelling reasons for further amendments to the proposals
identified
during the consultation process in New Zealand.
As this is likely to have implications for auditor reporting in New Zealand, NZICAs Technical Services
Team is
planning to prepare a submission on these proposals. Comments are due to the IAASB by 22 November
2013.
If you would like to contribute to our submission, please email submission.feedback@nzica.com.
by Zowie Murray CA - 30 October 20131/3/2015 Proposals for auditor reporting
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