The new auditor’s report

in Audit, 30.01.2015

On 15 January 2015, the International Auditing and Assurance Standards Board (IAASB) released its new and revised auditor reporting standards. The new requirements are designed to give users more insight into the audit and improve transparency. The description of key audit matters is the most significant change in the auditor’s report for listed companies.

Why change the auditor’s report now?

The change is the response to calls from users that the auditor’s report should provide more than a “pass/fail opinion”. The primary beneficiaries will be investors, analysts and other users as the report has more informative value. However, the new requirements are not intended to change the scope of a financial statement audit. It further remains the Board of Directors’ responsibility to communicate relevant information about the entity and its financial performance, including providing adequate disclosure in the financial statements.

What’s new about the auditor’s report?

Enhancements have been made to auditors’ reports for all entities. The content of the report will be reordered, with the audit opinion required to go first. Furthermore, the description of responsibilities of management (in Switzerland the Board of Directors) and the auditor have been revised, and enhanced auditor reporting on going concern will be introduced. In addition, the new report is going to include a description of work performed on other information such as the annual report.

What are key audit matters?

Key audit matters are those matters that in the auditor’s judgement were of most significance in the audit, i.e. the areas that the auditor worried about and focused on the most during the audit. The description of key audit matters will be tailored to the company and will:

  • Explain why the matter was considered to be of most significance to the audit;
  • Describe how the matter was addressed in the audit; and
  • Provide a reference to any related disclosure in the financial statements.

When determining key audit matters, the auditor is going to take into account areas of higher risk of material misstatement, areas in the financial statements that involved significant management judgement (for example accounting estimates with high estimation uncertainty) or the effect of significant events or transactions that occurred during the period.

The inclusion of key audit matters is mandatory for audits of listed entities, while voluntary application is allowed for all other entities.

Will these changes affect auditor reporting in Switzerland?

The Auditing and Accounting Practices Committee of the Swiss Institute is currently evaluating the implications of the new requirements in light of the existing Swiss Auditing Standards (SAS). It is expected that the new style auditor’s report will be available for use in Switzerland for audits that refer to International Standards on Auditing and SAS as of the effective date mentioned below. Furthermore, the Federal Audit Oversight Authority has to confirm that the revised standards can be applied by auditors subject to their oversight.

What is the effective date?

For auditor’s reports that refer to International Standards on Auditing, the amendments are effective for audits of financial statements for periods ending on or after 15 December 2016, i.e. for 2016 calendar year-ends. Early application is permitted.

 

 

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