Call for ‘courageous’ extended audit reports

ICAEW is calling for more support for extended audit reports, warning that the response to audit scandals such as Tesco and Rolls Royce has the potential to affect the development of audit

The institute says auditors, regulators and investors should get behind the new developments, introduced in 2013, and has published a series of calls to action to build on the achievements of the UK profession in extended audit reports.

They include challenging auditors to implement the spirit of extended reporting, not just the letter; asking regulators to share best practice rather than highlighting bad practice; public interest entities investing in their reporting to tell a clear, concise and consistent story; encouraging investors to raise questions and promote good practice, along with professional bodies; and calling for academics to use the rich data in extended audit reports to help shine a light on audit quality.

Henry Irving, ICAEW’s head of audit and assurance, said: ‘The extended audit report has come far in the UK, but the achievement is fragile and needs the continued support of everyone involved.

‘Auditors should be courageous and do their audits justice, while regulators should help by sharing best practice rather than highlighting bad practice.

‘Transparency is more and more in demand, so governments should be permitting and encouraging this. In addition, public interest entities should invest in their reporting as a whole, including the audit report so it tells a clear, concise and consistent story.’

‘All this represents a significant challenge for the profession. There is a real risk of failure, but the prize is worth striving for: clear communication of the value and relevance of auditing.’

Separately, the International Auditing and Assurance Standards Board (IAASB) says it welcomes the adoption by the US Public Company Accounting Oversight Board (PCAOB) of a new auditing standard to enhance auditor’s reports by providing additional, relevant information to users, including critical audit matters.

The PCAOB’s new standard, which is subject to US Securities and Exchange Commission (SEC) approval, is comparable with the IAASB’s new and revised auditor reporting standards, which require the communication of key audit matters in auditor’s reports of listed entities and became effective for December 2016 year-end audits.

Arnold Schilder, IAASB chairman, said: ‘The PCAOB’s adoption of a standard to enhance auditor’s reports is a significant step forward in providing useful and relevant information to investors and other users.

‘Auditor’s reports are no longer “boilerplate” reports—auditors are now providing additional information about the audit, which is highly valued by users. We are particularly pleased that the PCAOB’s requirements are comparable to those of the IAASB. Coordination among standard setters is important in striving toward auditing standards that are, in principle, globally consistent.’

ICAEW’s Extended Audit Report is here.

PCAOB’s AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion is here.

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