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Auditor Reporting

Project Status
This is an active project

Staff
Kathleen Healy

Task Force
Dan Montgomery, IAASB Deputy Chair, has overall responsibility for the Auditor Reporting project and is
chair of Drafting Team (DT) 701. The Auditor Reporting Drafting Teams are comprised of the following
members:
Bruce Winter, IAASB Member and Chair of DT 700
Annette Khler, IAASB Member
Brendan Murtagh, IAASB Member
Jianhua Tang, IAASB Member
Susan Jones, IAASB Technical Advisor
Denise Weber, IAASB Technical Advisor
Dan Montgomery, IAASB Deputy Chair, Chair of DT 701 and Overall Project Chair
Cdric Glard, IAASB Member
Marek Grabowski, IAASB Member
Marc Pickeur, IAASB Member
Megan Zietsman, IAASB Member
Chuck Landes, IAASB Member and Chair of DT-570
Jean Blascos, IAASB Member
Karin French, IAASB Member
Wolf Bhm, IAASB Technical Advisor

Objective(s) of project
The objectives of this project are to:
Appropriately enhance the communicative value and relevance of the auditors report through proposed
revisions to International Standards on Auditing (ISAs) requirements that address its structure and
content; and
Determine whether and how the IAASBs reporting ISAs, in their design, can be modified to
accommodate evolving national financial reporting regimes, while at the same time ensuring that
common and essential content is being communicated.
Achieving the project objectives is premised on the need to take into account the activities of others, and
consider how the IAASB may act to minimize the differences in auditors reports that may result from these
separate initiatives.
The project will include revision of ISA 700, Forming and Opinion and Reporting on Financial
Statements, and as appropriate, the revision of, or conforming amendments to, related communication and
reporting requirements relevant to audits (for example, ISA 260, Communication with Those Charged with
Governance).

Background
In 2006 the IAASB and the Auditing Standards Board of the American Institute of Certified Public
Accountants commenced a joint initiative to commission academic research to identify, and provide
information and insights on user perceptions regarding the financial statement audit and the auditor's report
among different classes of financial statement users. The research reports for the commissioned research
studies completed in September 2009 and are available below.
The Unqualified Auditor's Report: A Study of User Perceptions, Effects on User Decisions and Decision
Processes, and Directions for Future Research (May 2009)
Report on Research Conducted in the United Kingdom and New Zealand in 2008 Investigating the Audit
Expectation-Performance Gap and Users' Understanding Of, and Desired Improvements To, the Audit
Report (September 2009)

Investors', Auditors' and Lenders' Understanding of the Message Conveyed By the Standard Audit Report
(September 2009)
Financial Statement Users' Perceptions of the IAASB's ISA 700 Unqualified Auditor's Report in Germany
and the Netherlands (August 2009)

Task Force progress / Board discussions to date


The IAASB considered key messages concerning user perceptions about the standard auditors report,
identified from analysis of relevant information on that subject, including the research findings and
developments in jurisdictions such as the United Kingdom (U.K.), France and Japan at its December
2009 meeting (see Agenda Items 4). The academic research together with the IAASBs outreach activities as
well as the outreach activities of others present compelling evidence of strong demand by investor and user
communities for change in auditor reporting. The IAASB also discussed the topic of auditor reporting at
its December 2010, March 2011and May 2011 meetings (Agendas Items 7, 4 and 1 respectively).
The IAASB Consultative Advisory Group (CAG) discussed the project at its March 2010 meeting (Agenda
Item D) and March 2011 meeting (Agenda Item M)
In May 2011 the IAASBs issued a Consultation Paper, Enhancing the Value of Auditor Reporting: Exploring
Options for Change, (CP) to consult on the topic of auditor communications as a call for action. The
objective of the CP was to (i) determine whether there are common views among key users and other
parties to the financial reporting process about the usefulness and relevance of auditor reporting, and (ii)
obtain views about the extent to which an expectations gap or information gap exists. The CP also sought
views about possible options for enhancing the quality, relevance and value of auditor reporting, implications
for change and potential implementation challenges, and whether there were factors that would lead to
different solutions for different types of entities.
Because others in certain jurisdictions have identified the need to explore enhancements to auditor reporting
as well as corporate reporting more broadly, the IAASB plans to explore ways to work collaboratively with
groups who have active projects on auditor reporting. Among others:
The European Commission (EC) currently has efforts underway to reform audit policy arising from
lessons from the global financial crisis including proposed regulation and directives that address in part
the content of public auditors reports as well as auditors reports to audit committees.
The U.S. Public Company Accounting Oversight Board (PCAOB) has several initiatives underway to
explore changes to the auditor reporting model, including (a) its concept release (CR) on possible
options for changes to the auditors report to increase its communicative value; and (b) proposed rules
relating to enhanced transparency in auditors reports through disclosure of the name of the
engagement partner and others participating in the audit. With respect to its CR on auditor reports, the
PCAOB has signaled at its November 2011 Standing Advisory Group meeting that it would anticipate
issuing standard-setting proposals relating to auditor reporting in the second quarter of 2012.
The U.K. Financial Reporting Council (FRC) made recommendations to enhance reporting responsibilities
for audit committees to the full Board of Directors, via an expanded report made public by inclusion in
the entitys annual report. Auditors would then provide an expanded auditors report to include (i) a new
section that addresses the completeness and reasonableness of the audit committees report; and (ii)
identification of any matters in the annual report that the auditors believe are incorrect or inconsistent
with the information contained in the financial statements or obtained in the course of their audit. The
FRC completed an earlier initiative to facilitate more concise audit reports in 2009 and revised U.K. audit
reports to specifically refer to the auditors responsibilities in relation to other information that
accompanies the audited financial statements.
The IAASB CAG discussed the project at its September 2011 meeting (Agenda Item G, H, and K)
The IAASB approved a project proposal at its December 2011 meeting. The IAASB also considered a
summary of the significant comments received from the respondents to the CP at its December 2011
meeting (Agenda Item 5B). While accepting of the plan to issue a comprehensive exposure draft (ED) by
June 2013 as outlined in the project proposal, the Board advised that serious consideration should be given
to exploring ways to accelerate the project timetable or engage global stakeholders earlier than 2013
through meaningful consultation on key issues.
According, efforts on the Auditor Reporting project have been structured in a coordinated manner that
leverages the depth and breadth of IAASB resources. It is in this regard that the project Task Force will be
aided by a number of subcommittees (drafting teams) that will take key roles in analysis of issues and
options on specific topics, each chaired by a Task Force member.
The IAASB CAG discussed the project at its March 2012 meeting (Agenda Item H)

At its March 2012 meeting (Agenda Item 4), the IAASB discussed the scope and timing of the project to
revise ISA 700, Forming an Opinion and Reporting on Financial Statements, and related other ISAs. The
IAASB reaffirmed its commitment to this project as its highest priority over its 20122014 strategic period.
The IAASB considered a number of recommendations from the Auditor Reporting Task Force, including:
Proposals requiring auditors to include auditor commentary (AC) in their reports. Amongst other
matters, the Task Force was asked to further refine proposed requirements relating to the criteria for,
and content of, AC, and develop a proposed objective for AC. In addition, it was noted that the
relationship between AC and Emphasis of Matter and Other Matter paragraphs will need to be clarified.
Proposals requiring auditors to include conclusions about the auditors procedures relating to going
concern and other information in documents containing audited financial statements. Amongst other
matters, the Task Force was asked to further consider whether the proposed conclusion should be
expanded to take into account the concept of material uncertainties as described in ISA 570, Going
Concern.
Proposals to clarify the auditors responsibilities by describing the risk-based audit approach under the
ISAs, and clarification of other technical terms in the auditors report. The IAASB also deliberated
disclosure of the engagement partners name in the auditors report.
Proposals relating to the concept of the building blocks approach designed to indicate required content
in auditor reporting while allowing flexibility to accommodate different national reporting regimes and
auditors reports on entities of different types and sizes (e.g., listed entities, small- and medium-sized
entities, and public interest entities).
The IAASB held teleconferences on April 17, 2012 and April 24, 2012 to further consider proposals related to
auditor reporting.
At its June 2012 meeting (Agenda Item 3), the IAASB unanimously approved the consultation document
entitledInvitation to Comment: Improving the Auditors Report (ITC). The ITC set out the IAASBs indicative
direction proposed for the future auditors report. The ITC featured a revised auditors report that illustrates
the application of the IAASBs suggested improvements. The ITC also provided the IAASBs rationale for the
suggested improvements, together with a discussion of their potential value and impediments, and in what
areas feedback was sought. The ITC was open for public comment through October 8, 2012.
The IAASB CAG discussed the project at its September 2012 meeting (Agenda Item F.1).
At its September 2012 meeting (Agenda Item 9), the IAASB received a report back on discussions held at its
North American and European Auditor Reporting Roundtables and during other outreach activities to date.
Broadly speaking, strong support has been expressed for the IAASB's efforts. Nevertheless, there is diversity
of views in terms of both the value and impediments of suggested improvements to the auditor's report and
how they could be operationalized in practice.
The IAASB also discussed on a preliminary basis the scope and potential structure of the ISAs to be revised
as part of its Auditor Reporting project.
At its December 2012 meeting (Agenda Item 6), the IAASB discussed responses received on aspects of its
June 2012 ITC, and the feedback obtained from its three roundtables and other outreach on the topic.
In relation to AC, the IAASB agreed to continue to pursue the concept of AC. Among other matters, the
IAASB asked the Task Force to further consider the following:
A revised objective and title for AC, taking into account the view that a focus on key audit areas and
significant auditor judgment may be a useful way forward to respond to concerns from all stakeholders
that the auditor should not provide original information about an entity.
Requirements for AC for listed entities, recognizing that a post-implementation review may be a useful
means to inform the IAASB about whether wider application of requirements for AC would be
appropriate.
Criteria to guide robust auditor judgments about what matters to include in AC and the level of detail
that should be provided, taking into account the support from many ITC respondents for the IAASB to
explore using significant risks as the starting point for AC.
The IAASB also asked the Task Force to further consider whether the concepts of Emphasis of Matter and
Other Matter paragraphs should be retained, and how best to engage stakeholders, in particular investors
and analysts, as it works to refine the concept of AC and develop further illustrative examples.
The IAASB also agreed to continue to explore auditor reporting on going concern. Among other matters, the
IAASB asked the Task Force to further consider how work underway by accounting standard setters,
including the International Accounting Standards Board (IASB) and the US Financial Accounting Standards
Board (FASB), may affect the nature and timing of the IAASBs proposals. It also asked the Task Force to
further consider whether reporting on going concern should be required for all entities, or whether an

approach based on the importance of going concern considerations to the individual entity would be
preferable.
In relation to the "building blocks" approach, the IAASB confirmed that the design of extant ISA 700, which
allows flexibility when law or regulation prescribes the form and content of the auditors report, should be
retained. Nevertheless, among other matters, the IAASB asked the Task Force to further explore how
requirements for the auditors report, including the use of titles, subtitles and headings, could achieve an
appropriate balance between consistency and relevance.
The IAASB reaffirmed its commitment to developing an exposure draft of proposed revised auditor reporting
standards by June 2013. It also noted the importance of alignment, to the extent practicable, with others
currently addressing auditor reporting, including the EC, FRC and PCAOB.
At its February 2013 meeting (Agenda Item 2), the IAASB further deliberated issues relating to the concept
of AC introduced in the June 2012 ITC, Improving the Auditors Report. Among other matters, the IAASB
supported the following:
Change the term AC to Key Audit Matter (KAM)
A revised objective of the auditor for purposes of determining additional information to be included in
the auditors report, as follows: The objective of the auditor, having formed an opinion on the financial
statements, is to communicate in the auditors report those matters that, in the auditors professional
judgment, were of most significance in the audit of the financial statements. The objective would be
included in a proposed new ISA, tentatively labeled ISA 701, Communicating Key Audit Matters in the
Independent
Auditor's
Report.
The IAASB noted that the revised objective is not intended to signal a shift away from significant
matters in the financial statements. Rather, it is intended to articulate a focus in the auditors thought
process of selecting matters to report based on the audit performed, with reference to the disclosures in
the financial statements as appropriate, thereby enhancing users understanding of the entity based on
insights from further information about the audit.
Presentation of this additional information as a separate section of the auditors report under the
heading "Key Audit Matters". Among other matters, the IAASB also noted the following matters for
further consideration:
How proposed ISA 701 should best reflect the IAASBs view that the auditors judgment of what to
report externally is derived from what had been communicated with those charged with governance, and
whether any clarifications are needed to the requirements or guidance in ISA 260, Communication with
Those Charged with Governance.
How the introductory language in the illustrative example of the new section in the auditors report could
be drafted to clearly explain to users that the matters discussed in the auditors report is not intended to
be a comprehensive list of all matters discussed with those charged with governance.
Whether the initial list of factors intended to guide the auditors decision-making process in relation to
external reporting could be further streamlined.
Whether the proposed requirement for the auditor to include a statement in the auditors report when no
matters for external reporting had been identified is appropriate.
The IAASB also deliberated stakeholder responses to the remaining suggested improvements included in its
June 2012 ITC. Amongst other matters, the IAASB supported the following:
Inclusion of an explicit statement in the auditors report with respect to other information. In this
regard, the IAASB acknowledged the need to take into account feedback from respondents to the
exposure draft of proposed revised ISA 720, The Auditors Responsibilities Relating to Other Information
in Documents Containing or Accompanying the Audited Financial Statements and the Auditors Report
Thereon.
Specifying the text to be used in the auditors report to describe the auditors responsibilities for the
audit of the financial statements. To address concerns about the length of this standardized material,
the IAASB agreed that auditors could be permitted to include this material in an appendix to the
auditors report. The IAASB also acknowledged that law, regulation or national auditing standards may
explicitly permit the auditor to exclude this material from the auditors report and instead refer to a
website of an appropriate authority.
In relation to the matter of disclosure of the name of the engagement partner in the auditors report, the
IAASB noted that further study is needed before concluding on whether the IAASB should require disclosure
in all circumstances.
The IAASB also considered proposed revised requirements in ISA 700, and a revised illustrative auditors
report.

Finally, the IAASB received an update about work underway by the IASB and the US FASB relating to going
concern.
The IAASB CAG discussed the project at its April 2013 meeting (Agenda Item B).
At its April 2013 meeting (Agenda Item 2), the IAASB considered drafts of proposed ISA 700 (Revised), and
proposed new ISA 701.
In relation to proposed ISA 701, which would apply to audits of listed entities and when auditors of entities
other than listed entities communicate KAM in the auditors report, the IAASB discussed:
Revised objectives of the auditor focused on the auditor determining, from the matters communicated
with those charged with governance, those matters that, in the auditors professional judgment, were of
most significance in the audit of the financial statements; and, having formed an opinion on the financial
statements, communicating those matters in the auditors report.
Factors in relation to determining KAM to communicate in the auditors report.
Proposed requirements when auditors of entities other than listed entities communicate KAM in the
auditors report.
Revised introductory language in the illustrative auditors report which explains the purpose of the
communication of KAM.
The nature and extent of documentation requirements, and the extent of changes necessary to ISA 260,
in light of proposed ISA 701.
The IAASB also discussed issues related to auditor reporting on going concern, including revised wording to
be included in the illustrative auditors report. The IAASB agreed to undertake limited amendments to ISA
570, while further monitoring the activities of accounting standards setters relating to going concern in order
to determine whether there is a need for more extensive revisions to ISA 570 at a later date.
In considering proposed ISA 700 (Revised) and a revised illustrative auditors report, the IAASB further
deliberated, among other matters, the question of the appropriate level of flexibility that should be allowed
in relation to the form and content of the auditors report, including the description of the auditors
responsibilities. The IAASB also further deliberated issues in relation to disclosing the name of the
engagement partner in the auditors report, and agreed in principle to require disclosure for listed entities.
At the June 2013 meeting (Agenda Item 2), the IAASB unanimously approved the following proposed new
and revised ISAs for exposure:
Proposed ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements Revised to
establish new required reporting elements, and to illustrate these new elements in example auditors
reports.
Proposed ISA 701, Communicating Key Audit Matters in the Independent Auditors Report A new
standard to establish requirements and guidance for the auditors determination and communication of
KAM. KAM, which are selected from matters communicated with those charged with governance, are
required to be communicated in auditors reports for audits of financial statements of listed entities.
Proposed ISA 260 (Revised), Communication with Those Charged with Governance Amended required
auditor communications with those charged with governance, including proposed communication about
the significant risks identified by the auditor, in light of proposed ISA 701.
Proposed ISA 570 (Revised), Going Concern Amended to establish auditor reporting requirements
relating to going concern, and to illustrate this reporting within the auditors report in different
circumstances.
Proposed ISA 705 (Revised), Modifications to the Opinion in the Independent Auditors Report
Amended to clarify how the new required reporting elements of proposed ISA 700 (Revised) are affected
when the auditor expresses a modified opinion, and to update the illustrative auditors reports
accordingly.
Proposed ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditors Report Amended to clarify the relationship between Emphasis of Matter
paragraphs, Other Matter paragraphs and the KAM section of the auditors report.
The Exposure Draft (ED), (Reporting on Audit Financial Statements: Proposed New and Revised
International Standards on Auditing (ISAs), was released on July 25,2013 and was open for comment
through November 22, 2013.
The IAASB CAG discussed the project at its September 2013 meeting (Agenda Item C) and March 2014
meeting (Agenda Item C).
At its March 2014 meeting (Agenda Item 4), the IAASB discussed the feedback received on its ED. The
Board reaffirmed its decision to require reporting of KAM for audits of financial statements of listed entities,
and refined its proposals in light of calls for additional guidance to assist with the application and
implementation of the proposals. Regarding the topic of auditor reporting on going concern, IAASB

leadership continue to engage with IASB leadership in light of respondents views that a more holistic
approach to reporting on going concern is necessary. However, as IASBs efforts in this area would not
fundamentally address the topic of going concern, the IAASB re-assessed its approach proposed in the ED.
Other enhancements to the auditors report include disclosure of the name of the engagement partner for
listed entities, an explicit statement regarding the auditors independence, and an enhanced description of
an auditors responsibilities in an ISA audit.
At its June 2014 meeting (Agenda Items 2, 3 and 4), the IAASB:
Reached agreement on the overarching reporting standard, ISA 700, which includes the agreed new
requirements to make an explicit statement on independence and identifying the jurisdiction of origin of
independence and other ethical requirements in the auditors report, and identifying the jurisdiction of
origin of the sources of those requirements, as well as naming the engagement partner for listed
entities. The Board also progressed revisions to ISA 705 as a result of the changes to proposed ISA 700
(Revised).
Reached agreement on the scope of proposed ISA 701, in particular the requirements to determine KAM
and the conforming amendments to ISA 260. The Board advanced a proposed new requirement to
address the possibility that the auditor may decide, in extremely rare circumstances, not to
communicate a matter that had been determined to be a KAM in the auditors report. The Board also
considered revisions to ISA 706 to further differentiate the concept of KAM from Emphasis of Matter
paragraphs and Other Matter paragraphs.
Generally supported requiring statements in the auditors report describing managements and the
auditors responsibilities with respect to going concern, and a proposed new requirement in ISA 570 to
enhance the auditors work effort in relation to disclosures when events and conditions may cast
significant doubt on the entitys ability to continue as a going concern but the auditor has concluded that
no material uncertainty exists.
Considered the implications of proposed enhancements resulting from its auditor reporting project on
ISA 800, Special ConsiderationsAudits of Financial Statements Prepared in Accordance with Special
Purpose Frameworks, ISA 805, Special ConsiderationsAudits of Single Financial Statements and
Specific Elements, Accounts or Items of a Financial Statements and ISA 810, Engagements to Report on
Summary Financial Statements, as set out in its ED.
At its September 2014 meeting, the IAASB approved the following new and revised auditor reporting
standards:
ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
ISA 701, Communicating Key Audit Matters in the Independent Auditor's Report
ISA 260 (Revised), Communication with Those Charged with Governance
ISA 570 (Revised), Going Concern
ISA 705 (Revised), Modifications to the Opinion in the Independent Auditors Report
ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter paragraphs in the Independent
Auditor's Report
Conforming Amendments to Other ISAs.

Next Steps
Subject to confirmation of due process by the Public Interest Oversight Board, the IAASB plans to release
the new and revised auditor reporting standards in January 2015. Activities aimed at promoting awareness
and understanding, and effective implementation of the new and revised auditor reporting standards are
also scheduled to commence in 2015.

http://www.ifac.org/auditing-assurance/projects/auditor-reporting