Proposed international standard would change auditor reports

International auditor reporting guidelines would change significantly and require more communication from auditors under standards proposed Thursday by the International Auditing and Assurance Standards Board (IAASB).

The IAASB’s exposure draft includes a new proposed international auditing standard, Communicating Key Audit Matters in the Independent Auditor’s Report, which directs auditors to communicate in their reports matters that, in their professional judgment, were most significant in the audit.

“The intended outcome of this proposal is more informative audit reports, with information about the audit of the financial statements that is unique and more specific to the entity that has been audited,” IAASB Technical Director James Gunn said in a news release.

In addition, the IAASB proposes requiring auditors to:

• Include specific statements about going concern in their reports.
• Make an explicit statement about the auditor’s independence from the audited entity.
• Disclose the name of the engagement partner in the auditor’s report.

The ED, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs), includes sample reports that illustrate how the proposed guidelines would be applied in various circumstances.

Changes to the auditor’s reporting model have been considered by many standard setters in various jurisdictions in recent years. The PCAOB issued a concept release on the auditor’s reporting model in June 2011 and is scheduled to propose a standard by December.

The U.K. Financial Reporting Council last month issued a final standard designed to increase the transparency of the auditor’s report.

Although the IAASB standards are not binding in any jurisdiction, they provide standard setters and auditors worldwide with what the board considers international best practices.

“We expect the proposed new and revised standards will result in substantive changes to how auditors contemplate and approach communication to users of their reports—the beneficiaries of a financial statement audit,” IAASB Chairman Arnold Schilder said in a news release. “These changes are critical to the perceived value of the financial statement audit and thus to the continued relevance of the auditing profession.”

Comments on the ED are due Nov. 22 and can be submitted at the IAASB’s website.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.