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The Future of Auditor Reporting Forum, held by Institute of Singapore Chartered Accountants Sharing from Mr Hans Koopmans, Partner, PricewaterhouseCoopers LLP
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The Future of Auditor Reporting – Shaping Communication and What It Means for YouWednesday, 23 October 20139.00 am
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Overview of IAASB Auditor Reporting Project and Key Changes
Hans Koopmans
PartnerPricewaterhouseCoopers LLP
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Important disclaimer
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Agenda
Global initiatives on auditor reporting
Overview of IAASB proposals
Other relevant IAASB initiatives
Future timeline
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Global Initiatives on Auditor Reporting
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Global initiatives on auditor reporting
Overview
The financial crisis triggered renewed focus on the auditor’s report. Investors greatly value today’s binary audit opinion but would like
auditor’s reports to give them greater insight into the audit and/or the entity’s financial reporting.
Debates have moved beyond whether the auditor’s report will change. The focus is now on the nature and extent of changes and whether
auditor’s reports will remain consistent globally or whether different reporting models will emerge.
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Global initiatives on auditor reportingTimeline of developments
Backdrop of continuing focus on audit regulation and competition
IAASB and PCAOB 2011
consultations and
roundtables
UK FRC issues its
new auditor
reporting standard
which became
effective 1 October
2013
EC issues draft Audit Directive
and Regulation
with detailed
audit report requiremen
ts November
2011
IAASB releases proposed
direction for the future auditor’s
report in June 2012
(Invitation to comment)
IAASB Exposure
Draft released 25 July 2013
IAASB roundtables
in NY, Brussels and
KL in Sept/Oct
2012IAASB
response due 9
October 2012
PCAOB Exposure
Draft released 13 August 2013
2011 2012 2013
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Overview of IAASB Exposure Draft
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Overview of IAASB Exposure Draft
Key statistics One new standard One standard substantially revised Four standards with significant changes Four standards with conforming amendments ED including explanatory memorandum and all revised ISAs (marked-
up) is 200 pages (!)
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Overview of IAASB Exposure Draft
Key proposals Introduction of a new section of the auditor’s report describing “Key
Audit Matters” The auditor’s report to be expanded to include 3 conclusions:
- Auditor’s opinion on the financial statements as a whole- A dual-part conclusion on going concern - A statement as to whether any material inconsistencies between
the audited financial statements and other information (e.g., the annual report) have been identified
Additional wording and disclosures designed to provide greater transparency into the audit
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Overview of IAASB proposals
Key Audit Matters
A new section of the auditor’s report, mandatory for listed entities and voluntary for other entities.
Key Audit Matters are defined as:
“Those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance.”
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Overview of IAASB proposals
Key Audit Matters Professional judgement would be used to determine which of the
matters discussed with those charged with governance would be reported in the auditor’s report as a Key Audit Matter, taking into account the following factors:– Areas identified as significant risks– Areas in which the 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, including as a result of a significant deficiency in internal control
Intended to be entity- and audit-specific rather than boilerplate Source of original information
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Overview of IAASB proposals
Going Concern A further new section of the auditor’s report, applicable for all entities and
in all circumstances – that is, required statements are not conditional on any material uncertainty existing.
Proposed statements address:− An explanation of the ‘going concern basis of accounting’ adopted in the
preparation of the financial statements − Auditor’s conclusion that the use of the going concern basis of
accounting is appropriate− A statement that the auditor has not identified a material uncertainty
that may cast significant doubt on the entity’s ability to continue as a going concern
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Overview of IAASB proposals
Going Concern (cont’d)- A statement that neither management nor the auditor can guarantee
entity’s ability to continue as a going concern The auditor’s report will continue to prominently signal an issue relating
to a material uncertainty when such circumstances occur Financial reporting frameworks are not yet aligned “Near misses” could be a potential Key Audit Matter
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Other Selected Changes to ISAs
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Other selected changes to ISAs
Disclosure of name of engagement partner Improved description of responsibilities of the auditor No inclusion of additional information on going concern, Key Audit
Matters and other information when auditor disclaims an opinion Clarifying guidance if you have Key Audit Matters and Emphasis of
Matters and/or Other Matters
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One Other Relevant IAASB Initiative
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One Other relevant IAASB initiative
The IAASB is in the process of revising International Standard on Auditing 720 “The Auditor’s Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor’s Report Thereon”
Exposure Draft issued in 2012 – extends auditor’s responsibilities to read and consider other information (i.e., the annual report) for:– Consistency with the audited financial statements AND– The auditor’s understanding of the entity and the environment
acquired during the course of the audit Also extends scope to documents accompanying audited financial
statements and the auditor’s report thereon – not simply documents containing the audited financial statements
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Future Timeline
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Future timeline
New IAASB auditor’s
report comes into effect
2013 2014 2015 ?
or
2016 ?
EU political process to approve
Audit Directive and Regulation expected to extend into
2014
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