In November 2017, the AICPA Auditing Standards Board (ASB) unveiled a trio of proposals aimed at elevating the significance and utility of audit reports concerning financial statements of nonissuers. These proposals, aligned with the international standards set by the International Auditing and Assurance Standards Board (IAASB) and the Public Company Accounting Oversight Board (PCAOB), mark a pivotal moment in the evolution of audit reporting standards.
Upon finalization and approval, these proposals are poised to bring about substantial changes to the structure of audit reports, augmenting the disclosure of critical aspects of the audit process. The proposed modifications encompass a range of elements, including the presentation sequence, enhancements to the basis for opinion section, alignment with revised guidance on an entity's ability to continue as a going concern, and expanded delineation of both management and auditor responsibilities.
Proposed Changes: A Closer Look
Reordered Sections in Auditor's Report:
The proposed restructuring places the "Opinion" section at the forefront of the auditor's report, followed by the "Basis for Opinion" section. This adjustment seeks to streamline the report's readability and emphasize the auditor's ultimate conclusion before delving into the supporting rationale.
Enhanced Basis for Opinion Section:
To fortify the ethical framework underpinning audit processes, the "Basis for Opinion" section undergoes modifications. These changes aim to address the auditor's independence and other ethical responsibilities explicitly, ensuring a robust foundation for the expressed opinion.
Alignment with Going Concern Guidance:
The ASB's proposals align audit report requirements with the recently revised guidance on the auditor's duty to evaluate and report on an entity's ability to continue as a going concern. This synchronization ensures consistency and coherence across various dimensions of audit reporting.
Expanded Management Responsibilities:
The disclosure of management's responsibilities witnesses expansion, with a specific mention of individuals overseeing the financial reporting process. This inclusion, such as the audit committee or those charged with governance, aims to provide a more comprehensive understanding of the control and oversight framework.
Clarification of Auditor's Responsibilities:
The auditor's responsibilities receive a more detailed clarification, enhancing transparency regarding the nature and scope of their role in the audit process. This clarification is crucial for fostering a deeper understanding of the auditor's contributions to financial reporting integrity.
Handling Other Information in Annual Reports:
The proposed changes include a refined delineation of the auditor's responsibilities concerning other information incorporated into annual reports. This added clarity ensures that the auditor's role extends beyond the core financial statements to encompass a broader spectrum of information.
Requirements related to communication with audit committees and pertinent parties witness an enhancement. This aims to establish more robust channels of communication, fostering greater collaboration between auditors and stakeholders.
Key Differentiator: Communication of "Key Audit Matters"
A noteworthy distinction between the ASB's proposed audit standards and those introduced by the IAASB and PCAOB lies in the communication of "key audit matters" or "critical audit matters." Unlike the international and public company reporting standards, the ASB does not mandate a separate section for communicating such matters. However, auditors of non issuers are granted the flexibility to include this disclosure if necessitated by the engagement terms.
Implementation Timeline and Comment Period
The ASB anticipates the implementation of these proposals for audits of financial statements concluding on or after June 15, 2019, with the provisional effective date. This phased approach allows auditors to adapt gradually to the revised standards. The comment period for these proposals extends until May 15, 2018, providing a window for industry professionals and stakeholders to contribute their insights and perspectives.
Author's Expertise: A Valuable Perspective
Jennifer Louis, with a rich background spanning over 25 years, provides a nuanced perspective on these proposed changes. Her extensive experience in designing and delivering high-quality training programs in the realms of accounting and auditing positions her as a thought leader in navigating the evolving landscape of audit standards. Having commenced her career in Audit at Deloitte & Touche LLP, Jennifer brings a wealth of practical insights to the ongoing dialogue surrounding the future of audit reporting.The ASB's exposure draft reflects a commitment to elevating the transparency, relevance, and communicative efficacy of audit reports. As the profession collectively engages in the comment period, and auditors gear up for the anticipated changes, this juncture marks a crucial step in reshaping audit reporting for enhanced stakeholder understanding and confidence in financial statements.