The Future of Auditor Reporting Forum - Overview of IAASB Auditor Reporting Project and Key Changes

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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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