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The question of appropriate content and structure for the auditor’s report was the subject of an IAASB round-table meeting in New York on Monday. The IAASB is seeking feedback from investors, auditors, and other interested parties on an Invitation to Comment (ITC) it issued in June on the auditor’s report.
The ITC proposes that additional information in the auditor’s report should be provided as “auditor commentary” to highlight matters that the auditor believes are likely to be most important to users’ understanding of the audited financial statements or the audit. Auditor commentary would be required for public-interest entities, which at a minimum include listed entities, and could be provided at the auditor’s discretion for other entities.
“What would be of most interest to investors is how the auditor viewed the risks in the audit and satisfied themselves to them to the degree that it is communicated to the audit committee”, said Jack Ciesielski, president of Maryland-based investment research and management firm RG Associates.
But while investors seek more information regarding auditors’ expert opinions on important elements of the financial statements, there is concern that more information could increase legal liability. Richard Murray, chairman emeritus of the US Chamber of Commerce's Centre for Capital Markets Competitiveness, said requiring such information in reports would significantly increase the legal liability for both issuers and auditors.
The content of the auditor’s report has been reviewed by a number of standard-setters in the wake of business failures that occurred during the recent financial crisis. The IAASB’s ITC contains recommendations and questions for discussion advanced by the independent standard-setting body, which aims to strengthen auditing and assurance standards worldwide.
Proposed changes in the ITC include:
According to IAASB officials, there is clear demand for auditors to provide greater transparency about significant matters in the financial statements, as well as the conduct of audits. The IAASB cites recent initiatives by the PCAOB and the EC to improve auditor reporting as evidence that users in many parts of the world believe the auditor’s report must be enhanced.