The Board distilled this feedback into a set of proposals, which was published in June 2012, as Invitation to Comment: Improving the Auditor’s Report[1]. The goal is simple: to create an audit report that is more serviceable and effective for those who rely on it to make financial and investment decisions. (It’s not a matter of changing audit practices but about writing more useful reports.)
What did the board recommend?
Statement on going concern
The auditor’s report should include an explicit statement that the auditor concluded that the use of the going concern assumption is appropriate and no material uncertainties relating to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern were identified.
Auditor commentary
A commentary section should be included to point users to the information and issues that are likely to be most useful. For auditors, this means a lower threshold for the kinds of information to which they can draw attention, a focus on broad audit issues (not only tied to specific areas of the statements) and flexibility to include information they deem relevant for the user.
Engagement partner’s name
Although it is common practice in many jurisdictions to name the partner leading an audit, it is not in Canada. This would mark a significant change.
Responsibilities of management and going concern
Related to the first proposal, this recommendation means outlining who at the audited company is responsible for preparing financial statements, employing the going concern assumption and disclosing any related uncertainties.
Statement on inconsistencies
Auditors should include a statement confirming that the annual report and audited financial statements contain no inconsistencies.
Greater clarity and transparency
More prominence should be given to the auditor’s opinion in the report, to support people in navigating the complexities of financial statements by highlighting key information. Additionally, the involvement of other auditors should be included, as well as a compliance and ethics statement.
After going public with these recommendations last summer, the Board took comments until the fall. A draft of the new standard is expected in June 2013.
While many of the proposals mark a significant departure from current practice, this is an important moment for the audit industry. It’s an opportunity to make the auditor’s report a more effective tool.
“We support the IAASB’s initiative to enhance the quality, relevance and value of auditor reporting and agree that users can benefit from auditor insight,” says John Gordon, KPMG’s Canadian Head of Audit. “It is important that the proposals relating to auditor commentary are developed using robust criteria, which will enable auditors to provide meaningful commentary that is responsive to users’ needs.”
Why should the audit report better serve investors, analysts and others in the business community? Ultimately, these documents will inform important financial decisions and opinions offered to companies, clients, shareholders and the public. If the Board’s proposals succeed in making audited financial statements clearer and easier to navigate, it will mean better decisions for business and for the Canadian public.