The auditor’s report is the key deliverable addressing the output of the audit process. While users of the financial statements have signalled that the current auditor’s opinion on the financial statements is valued, many have called for the auditor’s report to be more informative and relevant.The objectives of the International Auditing and Assurance Standards Board (IAASB)’s auditor reporting project were hence to appropriately enhance the communicative value and relevance of the auditor’s report through revisions to the International Standards on Auditing (ISAs) that address its structure and content; and to modify, in their design, the IAASB’s reporting ISAs to accommodate evolving national financial reporting regimes, while at the same time ensuring that common and essential content is being communicated.
The ISCA Exposure Draft: Reporting on Audited Financial Statements – Proposed New and Revised Singapore Standards on Auditing (SSAs) and Related Conforming Amendments stems from the IAASB auditor reporting project. The Exposure Draft comprises an Explanatory Memorandum (pages 1 to 14) which provides the background and explanations of ISCA’s proposals. The proposals include the following new and revised SSAs, which are based on the new and revised auditor reporting ISAs:
Proposed SSA 700 (Revised), Forming an Opinion and Reporting on Financial Statements;
Proposed New SSA 701, Communicating Key Audit Matters in the Independent Auditor’s Report;
Proposed SSA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report;
Proposed SSA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report;
Proposed SSA 570 (Revised), Going Concern;
Proposed SSA 260 (Revised), Communication with Those Charged with Governance; and
Proposed Conforming Amendments to Other SSAs.
In addition, the proposals also include conforming amendments to the following locally developed pronouncements:
Statement of Auditing Practice (SAP) 2 (Revised), Auditors and Public Offering Documents;
Audit Guidance Statement (AGS) 5, Audits of Entities in Specific Industries, Professions or Vocations; and
AGS 10, Joint Audits.
These standards are expected to reinvigorate the audit and change the manner in which auditors communicate their work in the auditor’s report. This will inevitably impact other stakeholder groups, including the preparers of the financial statements (CFOs and their finance team), the directors, the investors and the regulators.
The most significant enhancement to the auditor’s report is the new requirement for auditors of financial statements of listed entities to communicate “Key Audit Matters (KAM)” – those matters that the auditors judge to be of most significance in the current period audit, with an explanation of how they were addressed in the audit. There are also enhancements to the auditor’s attention and communication on matters related to going concern in the auditor’s report.
ISCA welcomes comments on all matters addressed in the Exposure Draft, especially on three key areas identified on page 9of the Exposure Draft. This includes:
Respondents’ views on the scope of KAM reporting – whether the requirement to communicate KAM should be mandatory for audits of listed entities only or it should also be applicable to other entities, which may be of public interest;
Respondents’ views on the appropriate effective date of the new and revised auditor reporting standards;
Respondents’ views on the expanded “Responsibilities of management and directors for the financial statements” section in the auditor’s report.