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ASSURANCE ALERT: NEW PROPOSALS FOR AUDITOR
REPORTING
An exposure draft (ED) titled Reporting on Audited Financial
Statements, which contains proposednew and revised International
Standards on Auditing (ISAs), has recently been issued by the
International Auditing and Assurance Standards Board (IAASB).A
significant new auditing standard has been proposed: ISA 701
Communicating Key Audit Mattersin the Independent AuditorsReport.
It is anticipated that ISA 701 will apply to listed
entitiesonly.The IAASB is of the view that changes in auditor
reporting may have positive benefits on auditquality, or users
perceptions of it, as the auditors report is the key deliverable
that addressesthe output of the audit process for users of the
audited financial statements. The IAASB hope thata renewed focus on
the matters to be reported will indirectly result in an increase in
the auditorsprofessional scepticism, and will result in a more
robust dialogue with those charged withgovernance. These results
should have a positive impact on audit quality.
The aim of the proposed ISA 701 is to establish requirements and
guidance for the auditorsdetermination and communication of key
audit matters. Key audit matters are defined as thosematters that,
in the auditors professional judgement, are of the most
significance in the currentperiods audit of the financial
statements. The focus will be on areas of significant
auditorattention, including:
Areas identified as significant risk or involving significant
auditor judgement;
Areas in which the auditor encountered significant difficulty
during the audit, including with respectto obtaining sufficient
appropriate audit evidence; and
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.
A separate section will also be required to specifically address
the existence of a materialuncertainty relating to going concern,
including the auditors conclusion on the appropriateness
ofmanagements use of the going concern basis of accounting in the
preparation of the financial
statements.
The above will all be based on the auditors professional
judgement.
What does this mean for New Zealand entities?
It should be recognised that there is a large amount of weight
behind this standard internationallyand it appears that it is a
fait accompli for listed entities with a proposed post
implementationreview to determine whether broader applicability to
other entities is appropriate in the future.
However, it will ultimately be up to the New Zealand Auditing
and Assurance Standards Board(NZAuASB) to decide which entities the
changes to the auditor reporting model will apply to herein New
Zealand. (It is highly likely that the NZAuASB will follow
international requirements andrequire, at a minimum, ISA 701 to be
applied to listed entities audit reports).
Information included in the proposed audit report will be
significantly more comprehensive and itwill include entity specific
risks and potential confidential information will now be
madepublically available in the audit report.
It is highly recommended that all entities that are required to
be audited (especially listedentities) keep up to date with the
proposed changes, so that there are no big shocks when thestandards
come into effect.
