Earlier this year the International Auditing and Assurance Board (IAASB) issued its new and revised suite of reporting standards. Included in the changes is a brand new standard, ISA701 – communicating Key Audit Matters in the Independent Auditor’s Report, which will become effective for new audit reports for financial periods ending on or after 15 December 2016.
AASB701 is said to be a ‘game-changer’, establishing mandatory reporting requirements for listed entities and optional for all other entities. The standard requires auditors to select the most significant Key Audit Matters communicated to those charged with governance in the current period and report on them.
When describing Key Audit Matters, an auditor will be required to include:
Why the matter was considered to be one of the most significant How the matter was addressed in the audit, and A reference to the related financial statement disclosure.
The change comes after many users of the current ‘pass/fail’-type audit report felt that they were not getting enough detailed or relevant information to be able to make informed decisions, whether it be investors, analysts, or the general public.
Some of the benefits of the changes include:
Increased confidence in reports
Enhanced communication between auditors and those charged with governance
A renewed focus on the matters to be reported, and
Increased attention on disclosures within financial statements by management and those charged with governance.
This new standard has many implications which could be seen as controversial, including how it might change public perception of the company or potentially impact share price as well as what input the entity might have in defining Key Audit Matters and the way in which they are described in reports.
As the financial period affected has not yet commenced, for now; businesses must wait until the Auditing and Assurance Standards Board releases information on how much these international standards will affect Australian reporting requirements.
If you have any questions about how this new standard may affect your business, please contact your relevant ESV Engagement Partner on (02) 9283 1666.