THE new audit reporting standards released by the International Auditing and Assurance Standards Board will increase transparency and audit quality, but it will also increase the exposure and risks facing auditors, says Mike Bourne, professional practice director at EY in Cape Town.
He says the new standards require auditors of listed companies to include all key audit matters which are in the auditor’s professional judgement of most significance in the audit of the financial statements for the period.
"The challenge for the auditor will be to decide what to put in the report and what not, because with some of the large audit engagements the key audit matters can be quite a long list."
Mr Bourne said the new standards did provide guidance on what should be considered during an audit. This included areas of higher assessed risk or material misstatements, significant auditor judgements relating to areas in the financial statements, and the effect of significant events or transactions that occurred during the period on the audit.
"The key audit matters will relate to significant or complex matters that had to be considered in the drawing up of the financial statements, such as the valuation of goodwill, or the valuation of financial instruments," Mr Bourne said.
Independent Regulatory Board of Auditors CEO Bernard Agulhas says the new standards are the most significant changes the profession has seen in the past 20 years. The board fully supports the changes, and welcomes the fact that standard setters addressed investors’ need for more information relating to the audit process.
The new standards are effective for audits of the financial statements of listed entities for periods ending on or after December 15 2016.
EY recommends audit teams engage timeously with their clients to show what the audit report might look like under the new international standards to ensure that there are no major surprises or shocks.
Mr Bourne says there are continued demands for greater precision in the way international financial standards are being drawn up. The standard setters have felt obligated to get leading reporting practices, but in so doing they have made them more complex and in some instances difficult to comply.
However, changes to the standards for auditor reports were widely welcomed, he says.
Picture: THINKSTOCK
THE new audit reporting standards released by the International Auditing and Assurance Standards Board will increase transparency and audit quality, but it will also increase the exposure and risks facing auditors, says Mike Bourne, professional practice director at EY in Cape Town.
He says the new standards require auditors of listed companies to include all key audit matters which are in the auditor’s professional judgement of most significance in the audit of the financial statements for the period.
"The challenge for the auditor will be to decide what to put in the report and what not, because with some of the large audit engagements the key audit matters can be quite a long list."
Mr Bourne said the new standards did provide guidance on what should be considered during an audit. This included areas of higher assessed risk or material misstatements, significant auditor judgements relating to areas in the financial statements, and the effect of significant events or transactions that occurred during the period on the audit.
"The key audit matters will relate to significant or complex matters that had to be considered in the drawing up of the financial statements, such as the valuation of goodwill, or the valuation of financial instruments," Mr Bourne said.
Independent Regulatory Board of Auditors CEO Bernard Agulhas says the new standards are the most significant changes the profession has seen in the past 20 years. The board fully supports the changes, and welcomes the fact that standard setters addressed investors’ need for more information relating to the audit process.
The new standards are effective for audits of the financial statements of listed entities for periods ending on or after December 15 2016.
EY recommends audit teams engage timeously with their clients to show what the audit report might look like under the new international standards to ensure that there are no major surprises or shocks.
Mr Bourne says there are continued demands for greater precision in the way international financial standards are being drawn up. The standard setters have felt obligated to get leading reporting practices, but in so doing they have made them more complex and in some instances difficult to comply.
However, changes to the standards for auditor reports were widely welcomed, he says.
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