The audit report – Changes are coming…

Earlier this year the IAASB (International Auditing and Assurance Standards Board) issued the much-anticipated revised and new auditor reporting standards, which will be effective for audits of financial statements for periods ending on or after 15 December 2015.  These changes, which are primarily driven by the information needs of users of financial statements, impose significant changes on the current manner of auditor reporting.

The changes have been designed to address the following needs identified with users of audited financial statements:

1. Better understanding of the audited entity;
2. Enhanced insight into the overall message communicated through the audited financial statements;
3. Ability to focus on the important/most significant matters for the auditor;
4. Early warning of potential issues relating to going concern.

Some of the most significant benefits that are hoped will be derived from these changes include more informative audit reports for users of financial statements; enhanced communication between users, those charged with governance and the auditor; increased confidence; and transparency of the audit report.

The changes

The changes include the following:

1. New form and layout of the audit report: The Opinion section is required to be put first, followed by the Basis for Opinion section (which now is to be included even in the case of an unmodified opinion).
2. Enhanced reporting on going concern, which includes the following:
   1. A description of the respective responsibilities of management and the auditor with regard to going concern.
   2. In the case of a material uncertainty with regards to going concern, but where the going concern basis is still appropriate, a separate section “Material Uncertainty related to Going Concern”, in which the material uncertainty is described, is to be included.
   3. In the case of close call situations where events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern, the details and reason why it is considered a close call, have to be included.
3. An affirmative statement about the auditor’s independence and the fulfilment of other ethical responsibilities is to be included in the audit report.
4. An enhanced description of auditor’s responsibilities also to be included in the report.
5. A description of Key Audit Matters (KAMs)[1] identified during the audit. (Only required for listed entities; voluntary for all other audits).

It is apparent from the above that we are entering a new era in auditor reporting where, although we would have preferred a prescribed layout, we will be seeing audit reports with content that is tailored to provide more client-specific detail and that addresses the needs of the users of the financial statements.  Where we have come to know an audit report as a document of which merely the modification (if there is any) is read, we will now have a document that will provide the reader thereof with a much more transparent and informative overview of our audit.

ASL will be consulting with its clients on an individual basis closer to the implementation date in order to discuss the anticipated effect of these changes on the audit reports of their entities.

Should you have any questions on the effect of these new reporting standards and their implications, kindly contact your relationship director or Christa Swart at christas@asl.co.za or 021 840 1600. 

Source: SAICA Small & Medium Practice Newsletter, Quarter 1 2015
 

[1] KAMs: Those matters that, in the auditor’s judgement, were of most significance in the audit of the financial statements for the applicable financial period.