Following the global financial crisis, users of audited financial statements want more insight into audited entities and their financial statements. Many feel that, although the auditor’s opinion is valuable, the auditor’s report could provide greater transparency about what the auditor does in an audit and the results of that work.
Indeed, the requirements of Proposed International Standard on Auditing (ISA) 700 (Revised), Forming an Opinion and Reporting on Financial Statements, “….. are aimed at addressing an appropriate balance between the need for consistency and comparability in auditor reporting globally and the need to increase the value of auditor reporting by making the information provided in the auditor’s report more relevant to users.”
As I see it, a change is therefore needed not only in how an audit-or reports, but also what he/she reports to meet the information needs of a variety of users of the financial statements.
We see as an imperative that the proposals relating to auditor commentary included in audit reports are developed using robust criteria which will enable auditors to provide meaningful commentary that is responsive to users’ needs.
We believe that, at its very core, the role we play as auditors is to be the trusted intermediary between the preparers and users of financial information. But this trust has been severely strained as a result of the financial crises. We are of the view that the future of auditor reporting within a wider context is to move away from the pass/fail format of the audit report to a position where auditors provide broader assurance on additional information that matters to stakeholders.
The future of auditor reporting within a wider context is to move away from the pass/fail format of the audit report to a position where auditors provide broader assurance on additional information that matters to stakeholders
So, against a backdrop of the proposed changes to the audit report, legislative reforms aimed at the profession at EU level, increased users’ expectations, heightened regulatory scrutiny and a host of other moving targets, one need not be the bearer of a crystal ball to foresee auditors being asked to take on an ever-increasing task list in meeting all the demands that such changes will necessitate.
A widening expectation gap will narrow through audit enhancements and extending the auditor’s role – not the lowering of the public’s expectations. Those enhancements are to see auditors communicating key audit matters in their audit report and including therein explicit statements on going concern as is currently being proposed by the International Auditing and Assurance Standards Board, and, as we see it, attesting to, among others, governance, business risks and (not least) systems of internal control supporting financial reports communicated to the capital markets. In this regard, we are firmly convinced that users can benefit from auditor insights.
Beyond such reporting, then, the audit profession needs to reposition, and at the same time guard the auditor’s existing post, besides breeding the ‘NextGen’ auditors.
hilarygalea-lauri@kpmg.com.mt
Hilary Galea-Lauri is the partner for audit services at KPMG Malta.