Over time, audit reports have been seen as “two sides to a coin” with auditors issuing a binary “pass or fail” verdict on the financial statements. It is either the financial statements give a true and fair view of the financial position, financial performance and cash flows of the reporting entity or they don’t. While this approach remains valuable, many believe it is no longer enough. This is because auditors have more insights to share, and users of financial statements are eager to know about them. Likewise, users of financial statements want more transparency about what the auditor’s responsibilities are, what the auditor considered to be the key areas of the audit and details of work done. Accordingly, several regulators and standard setters have responded with measures that would require auditors to say more.
In this publication, we discuss the key changes to the new auditor’s report in order for users of financial statements, particularly shareholders, investors, audit committee, management, regulators, analysts and other stakeholders to be better informed of the changes so they can appreciate the new auditor’s report and be in a position to assess the quality and value of an audit.
Enhancing value of audit through a global change
The International Auditing and Assurance Standards Board (IAASB) has after a five-year project, released the New and Revised Auditor Reporting Standards and Related Conforming Amendments (the “Standards”) which will transform the auditor’s report and for listed entities, will include descriptions of Key Audit Matters (KAM). For audits undertaken in accordance with the International Standards on Auditing (ISAs), the IAASB’s amended Standards are effective for annual periods ending on or after 15 December 2016, although auditors can choose to apply the new requirements earlier.
Our Thought
KAM are those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements and were addressed in the context of the audit of the financial statements as a whole, and in forming an audit opinion thereon. For KAM to be useful, the auditor is required to describe
them and their significance in the context of the audit as a whole and not as separate elements requiring a discrete opinion.
The description of KAM is written by the auditor based on their judgment. Therefore, the manner in which KAM is described would most likely vary from auditor to auditor, and from one audit engagement to another. A KAM description would generally meet the requirements of the Standards if it is:
  • • Fact based;
    • Tailored to the reporting entity;
    • Concise and free from technical jargon;
    • In sufficient detail to explain how the KAM was addressed.

Download a free copy of the Report here: New Audit Reporting

David Okwara

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