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A number of related areas arising from the crisis have already been analysed, especially in Europe, where issues such as corporate governance and the broader views on audit policy in general have received great attention from regulators, as well as from all stakeholders within the financial reporting system.
In this broader context of the European debate on audit policy, it is therefore the right time to review at international level whether improvements can be made as to how auditors communicate with their stakeholders. It will be important for the standard-setter to aim at changes that are globally accepted given the globalisation of markets and of the users of financial statements. As the PCAOB is debating the same issue of identifying potential improvements to the current reporting model, the IAASB is strongly encouraged to engage in a close dialogue with the US auditing standard-setter on the matter. Also, it will be important to engage with other stakeholders to find the right balance of improvements that will result in additional value for the users of audit reports.
FEE recognises that change is needed and should be made with the aim of improving the communicative value of audit reports through providing better information and not just more information about the audit.
The Consultation Paper identifies and discusses the information gap between auditors and the users of financial statements. FEE agrees that there are possibilities for reducing this information gap by the auditor as well as by the audited entities. However, it may not be possible to reduce this gap for all users.
The expectation gap also exists alongside the information gap and may be affected in a positive way with a reduction in the information gap. However, there have been many attempts to reduce this gap and it is unlikely that it will be possible to eliminate it fully.
An important role of the audit profession is to add transparency to and provide comfort as to the reliability of corporate reporting, including financial as well as non-financial information. In this context, the developments regarding integrated reporting are important to monitor, as integrated reporting, at these early stages of its development, has the potential to change significantly the way that financial reporting is done. Financial reporting has also been criticised for being complex and difficult to understand, and initiatives have been introduced to review and reduce complexity of financial reporting. The IAASB is encouraged to monitor these developments closely as they will all impact the audit and auditor’s communication.
Although the audit is the core service of the audit profession and should continue to be valued as contributing to the reliability of financial information, more and more attention should be given to the role of the auditor in relation to non-financial information. The work undertaken by the IAASB rightfully focuses not just on the audit report in accordance with ISA 700, but on audit communication in a broader sense. Changes introduced to audit reports should therefore be considered for other types of reports as well, such as for review reports and other assurance reports. The aim would be alignment and to maintain the consistency that currently exists throughout the various reports issued in accordance with IAASB standards, whilst still ensuring that audit reports are clearly differentiated from review and other assurance reports.
FEE's main comments are summarised as follows: