The New Auditor’s Report
The audit report which we have all become familiar with is expected to take on a new format effective for financial periods ending on or after 15 December 2016.
The revised Auditor’s Report is expected to be more forthcoming and transparent.
The revised report intends to enhance communicative value and relevance which is expected to result in an improvement of the quality of audits as well as the perception of the users of the audited statements.
In its simplest form two significant modifications have been made to the report – the addition of a “Basis for Opinion” paragraph regardless of the audit opinion and the disclosure of Key Audit Matters.
In addition to the “Opinion” which we are familiar with, a “Basis for Opinion” is added to the report, regardless of whether it is qualified or not.
The “Basis for Opinion” paragraph will create for transparency as it is expected to contain key elements detailing:
- Conduct of the audit, in line with auditing standards , and the fact the audit evidence is sufficient and appropriate
- Confirmation of auditors independence and conduct in line with ethical requirements
- Detail any modification to the auditor’s report and the type of modification
- Detail of an emphasis of matter or other matter
- Separate disclosure is required for any material uncertainty regarding going concern
- Disclosure of Key Audit Matters
The most dynamic and significant addition in the Basis of Opinion paragraphs is the introduction of Key Audit Matters (KAM).
Key Audit Matters are defined as matters, which in the auditor’s professional judgement were of most significance in the audit of the financial statement of the current period.
Disclosure of KAM’s is applicable to listed entities or to non-listed entities if required by law or regulations. The disclosure of KAM’s may also be adopted voluntarily by the auditor.
The voluntary disclosure of KAM’s is where the excitement regarding the new Auditor’s Report stems from. It will allow for stakeholders to gain more value from the audit report and creates an opportunity for the audit report to be more informative and practical for business purposes.
Article first published by: Accountancy SA