'Improved transparency in auditor reporting - making this a reality in the European market'

Date

28 Nov 2013

Sections

Euro & Finance

Press release

The IAASB proposals towards improving auditor reporting  are a welcome step in the right direction, but some tensions remain. Consistency and convergence of existing and upcoming initiatives in this field are crucial, revealed an expert roundtable organised in Brussels by the FRC and ACCA

 

In July 2013, the International Auditing and Assurance Standards Board (IAASB) published far reaching proposals to make auditor’s reports more informative in an exposure draft entitled Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs). The proposals follow from earlier consultations in 2011 and 2012, which were developed after research into user perceptions of auditor reports and following-up the global financial crisis, which triggered key questions linked to the quality and effectiveness of auditing, professional judgment and skepticism, as well as relevance of audit and trust in the audit profession.

 

In light of the ongoing debate on audit reform that is currently taking place at EU level, it is very important to ensure consistency of the various upcoming proposals on the issue. With this in mind, the Financial Reporting Council (FRC) and ACCA (the Association of Chartered Certified Accountants) recently jointly hosted an informed roundtable discussion in Brussels for interested parties to discuss, first hand with the leadership of the IAASB and experts from EU institutions, regulators, the business community, leading investors, as well as the auditing and accountancy profession, the IAASB proposals to improve auditor reporting transparency and how to make this a reality in the European market.

 

The event started with a presentation by Professor Arnold Schilder, Chairman of the IAASB,  of why change was needed, the background to the IAASB proposals and an overview of their content. He indicated that “the proposed improvements represent a significant change in practice, but they are critical to the continuing perceived value of the audit and relevance of the profession. Now is the time to begin thinking about how to prepare for the future to help ensure success, from the point of view of both practitioners and users.”

 

Discussions revealed the importance of the issue and its international dimension, as illustrated by the number of other existing initiatives in this area, such as the ones from the US PCAOB, the UK’s FRC, and the European Commission. Most speakers highlighted the need for consistency, convergence and harmonisation, while recognising that a lot of effort was being made in order to make that happen.

 

There was a general feeling that whereas things are moving in the right direction, there remain however a number of areas of tension. For instance, the IAASB proposals* clarify what information should come from which source, but businesses reiterated a strong concern that the auditor should not provide original information about the company. Investors expressed doubts regarding the accountability and transparency of the audit, essentially because they felt excluded from the audit process and real findings, and hoped that the IAASB proposals will introduce a more enlightened audit report. They welcomed the introduction of the new “Key Audit Matters” (KAM)*, but warned that improved disclosures should not become standardised and boilerplate year after year, they should remain meaningful and tailored to companies’changing circumstances.

 

The scope of application and the role of national regulators were also discussed. There were some further questions around KAM and their interrelationship with “emphasis of matter” and the new section on “going concern”, and ordering of key paragraphs. Is it clear what a KAM is? Some asked whether we need more guidance, while some said the more guidance you have, the more constraints there are.

 

Brendan Murtagh, ACCA member and IAASB board member provided a Small and Medium size Practice (SMPs) angle to the debate, explaining that “ ISA 701 applies to listed entities and provides for possible wider applications, such as voluntary reporting of KAM by non-listed entities. This evolution should be recognised and embraced as an opportunity rather than a burden by SMPs, as it is a clear demonstration of the  value of an audit, irrespective of whether an entity is listed or not.”

 

Marek Grabowski, Director of Audit Policy, FRC, concluded “despite the remaining tensions, we are definitely moving in the right direction. Most key IAASB proposals are expected to have positive benefits on audit quality and users’ perception, and will hopefully  increase users’ confidence in the audit and the financial statements, while renewing the auditor’s  focus on matters to be reported. However, there will be no perfect answer, we will have to explore, and accept that to some extent, this is going to be experimental, and will not be based on strong practice in some areas. It is described as a golden opportunity for the profession, a part of that is about taking some risk and giving it a go”.

 

-ends-

 

Notes to editors

 

* The IAASB proposals include

  • Opinion preferably first
  • New section to address Key Audit Matters - The proposals aim at clarifying what information should come from which source - for example, information about the entity is more appropriately disclosed by the audit committee and information about the audit is more appropriately disclosed by the auditor. The objectives of the proposals for Key Audit Matters are for the auditors to communicate the matters that, in their professional judgement, were considered of the most significance in the audit of the financial statements; what constitutes a ‘Key Audit Matter’ will be left to the auditor’s professional judgement.
  • New section to address Going Concern-  since the financial crisis, and the EU proposals on audit reform, there has been a heightened attention on the issue of going concern.
  • New section to address Other Information when such information is presented with the audited financial statements
  • Other suggested improvements to enhance transparency or clarify responsibilities including Statement about independence and other ethical responsibilities; Naming of the engagement partner (listed entities); Improved description of auditor responsibilities and key features of the audit.

 

About FRC

  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
  2. All Press enquiries should be directed to: Peter Timberlake, Head of Communications, on telephone: 020 7492 2397 or email: p.timberlake@frc.org.uk

 

About ACCA

  1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
  2. We support our 162,000 members and 428,000 students in 173 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 89 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
  3. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.

 

For more information, please contact:Cecile.bonino@accaglobal.com, +32 (0) 2 286 11 37

Cecile Bonino
ACCA

Public Affairs and Media Relations Manager-EU
CBI business house
14 rue de la Science
BE-1040 Brussels
Tel:+32 (0) 2 286 11 37
Mob: +44 (0) 7809595008
http://www.accaglobal.com

Addressing the challenges of the global economy - learn more at www.accaglobal.com/economy

 


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