The document discusses the new auditor reporting standards which require additional disclosures in audit reports, including key audit matters. It raises questions about whether the new standards will achieve their goals of providing more meaningful information to shareholders and other report users. Specifically, it questions whether the additional information will overload users, whether all firms can effectively implement the new reporting, and whether regulators will continue to be supportive in the initial implementation period. It also considers potential unintended consequences, such as increased legal risks for audit firms and effects on company share prices.

1. The New Auditor Report -
A Double-Edged Sword?
8 December 2016

2. The New Auditor Report - A Double-Edged Sword?
• Auditors are required to give
an opinion on the overall
fairness of the financial
statements
• There is more beneath the
audit report
• The new auditor report aims
to surface more relevant
information to the readers
Audit report is just a tip of an
iceberg

3. The New Auditor Report - A Double-Edged Sword?
• Has the new standard gone
far enough to ensure the
intended outcomes meet the
expectations it sets?
• What are the chances of
“Rolls Royce” audit report to
be the norm?
• Where IAASB standard differ
from the UK standard?
Why?
Would the outcomes meet
the expectations set?

4. The New Auditor Report - A Double-Edged Sword?
• Would the new format and
additional disclosure provide
meaningful information which
enable shareholders and other to
make better decisions?
• Information overload? More
information to digest? Whether the
issues raised really matter?
• Would the board’s response to key
issues raised sufficient?
• Would shareholders ask more
questions at AGMs?
How would the stakeholders react to
more discussions in the audit report?

5. The New Auditor Report - A Double-Edged Sword?
• Would every firm be able to craft
reports which are meaningful
and easily understood?
• Need advanced planning and
waiting till the end of the audit
would not be helpful
• Partners need to be more
involved, internalise issues and
report more substance rather
than conforming to form
• How fast this would results in
boiler platers?
Can the auditors deliver?

6. The New Auditor Report - A Double-Edged Sword?
• Regulators have been very
facilitative on the implementation of
the new auditor reporting standards
• Would they adopt the soft approach
for the initial period of
implementation?
• The FRC in the UK for example has
been very forthcoming in promoting
the new standards including
publishing their observations
How would the regulators
react?

7. The New Auditor Report - A Double-Edged Sword?
• Would significant key audit
matters influence the share price
when appearing for the first time?
• Does it indicate the quality of
governance of the company,
especially recurring issues?
• Would judgmental issues be
sufficiently explained to ensure
the readers understand the
context?
• Increasing risks of legal action by
third party?
What if the sword swings
back towards the board?

8. The New Auditor Report - A Double-Edged Sword?
• Your auditors should have explained to
your how the new auditor report will work
and affect your companies
• The draft report based on prior years’
issues would have been presented to the
audit committee to provide the feel of
what would be coming your way
• Key audit issues for the present financial
year would have been identified and their
effect on the auditor report be assessed
• Issues which are highly judgmental would
be candidates for the key audit matters
What should have happened
by now?

9. The New Auditor Report - A Double-Edged Sword?
• The new auditor reporting attempts to provide
readers of audit report with more insights about
the audit and what were the key judgment areas
and going concern
• Expect differences of approaches by audit firms
at the initial stages, the reaction from
stakeholders would be critical
• Audit committees should take this issue
seriously, along with other pressing matters
which may cause this new standards to be
overlooked
• The auditing profession has the duty to make
this work rather than be creative in retaining
status quo is a different form
Moving forward

10. The New Auditor Report - A Double-Edged Sword?