Key Changes in Audit Reporting Requirements

The assignment content discusses the changes in audit reporting requirements made by IAASB and PCAOB, with a focus on similarities and differences between the two. The report highlights the key changes, including the introduction of Key Audit Matters (KAM) and Critical Audit Matters, as well as changes to the ordering and basis for opinion sections. The report also discusses the reasons behind these changes and critiques whether they are likely to achieve their aims.

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Table of Contents
The key changes to the audit report. With a focus on the similarities as well as any
differences between PCAOB and the International Auditing and Assurance Standards Board
(IAASB) auditing reporting requirements.................................................................................3
Explain the reasons/motivation for the changes and critique whether these changes are likely
to achieve their aims...................................................................................................................6
Outline the likely impact of the audit reporting on audit practice.............................................7
References..................................................................................................................................8
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Solution 1
Preparation of audit report is the work of an auditor. It is the duty of the auditor to make a
true and fair opinion over the accuracy of the financial statements. Financial statement may
be used by various persons for their general purposes which are commonly known as Users
of the financial statement (Arens, et. al., 2012). Some of the users of financial statements are
Management, Investors, Creditors and lenders, employees, government, and society.
Differences and Similarities between PCAOB and the International auditing and assurance
standards board (IAASB) regarding audit report requirement are as given below:
Main feature IAASB standards PCAOB standards Similarities/
Differences
Communication of
KAM/CAM in
regard to modified
opinion
Auditor’s report
does not include
KAM.
In a situation when
there is adverse
opinion,
communication of
CAM does not
apply.
Communication of
KAM/CAM in
regard to modified
opinion is similar in
both.
Ordering as well as
basis for opinion
Section of opinion is
needed to be
presented first, and
then it will be
followed up by
opinion section
unless regulations
prescribe a diverse
placement.
Section of opinion is
needed to be
presented first,
followed by bases
for opinion section.
The ordering of
these sections is
same.
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Responsibilities of
the auditor, and of
management and
TCWG (those
charged with
governance)
These are located in
different and
separate sections in
the auditor’s report
prepared by the
auditor.
Enhancement to
some language,
comprised of
“whether due to
error or fraud” when
describing the
responsibilities of an
auditor under
PCAOB standards to
receive reasonable
assurance that
accounts of financial
statements of the
entity will be free of
misstatement (Burns
and Fogarty, 2010).
Description of
responsibilities of
auditor, management
and those charge
with governance are
not as detailed under
PCAOB standard.
Tenure of Auditor No need to disclose
the tenure of
Auditor.
A statement stating
the beginning year
of the auditor from
which he started to
work continuously
as company’s
auditor is required.
Disclosure of
auditor’s tenure is
not needed in case of
IAASB standards.
Date of
effectiveness
Periods or year
ending on or after
December 15, 2016.
Effective dates:
All provisions
excluding CAM
audit for the
financial year ending
on or after 15
December 2017.
Effective dates are
different from each
other.
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Definition of KAM: Key Audit Matters (KAM) are those matters that are having most
significance in the financial statement’s audit of the current period. These matters are selected
from the matters communicated with TCWG.
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Solution 2
The following are the changes in the audit reporting requirement made by IAASB and
PCAOB
Going Concern Concept: Financial statement of account of a company is prepared as per
going concern concept. Going concern basically, means the operations of an entity will
continue for a foreseeable period (Messier Jr, et. al., 2015). The IAASB wants to express the
impossibilities that happened in the financial background that can affect the concept of going
concern in the Company.
It is assumed that entity has neither the intention nor the necessity of liquidation of the
business.
Critical Audit Matters: Critical Audit Matters as like of Key Audit Matters introduced by
IAASB. These audit matters which are critical are used by PCAOB to determine the
significant areas of accounts of financial statements that are most important for the procedure
of audit. But these matters determined by the auditors independently.
Representation of other items: Financial statement accounts of an entity comprised of other
items also which cannot be presented in the balance sheet and statement of profit and loss
account of the company for a year. However, the information can be material to financial
health as well as the financial position of the Company. In the new IAASB audit report, it is
mandatory to present this information in the new format provided by the IAASB.
Key Audit Matters: KAM is some of the important matters that required to be reported in
the audit report prepared by the auditor. Key Audit Matters can be identified by the auditor
with the help of communicating to higher management and those charged with governance.
KAM can affect the financial strength as well as the financial position of the Company.
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Solution 3
The audit report includes three paragraphs in its report as a format which is as follows:
(a)Responsibility of the concerned auditor while doing his work,
(b)Areas covered by him in the audit procedure while conducting the audit and
(c)The opinion of the auditor on the accuracy of financial statement accounts of the
Company.
However, Auditor cannot be held responsible for nondetection of those frauds and errors
which are perpetrated into the accounts of an entity by the management and nondetection of
which is not possible during normal examination provided. Auditor worked with due care and
due skill and without negligence (Public Company Accounting Oversight Board (PCAOB),
2011). That’s why users of the financial statement find the audited balance sheet and profit
and loss accounts be more trustworthy than the non-audited one. The audited financial
statements at the end will help the stakeholder in protecting their interest.
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References
Arens, A.A., Elder, R.J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Burns, J. and Fogarty, J., 2010. Approaches to auditing standards and their possible impact on
auditor behavior. International Journal of Disclosure and Governance, 7(4), pp.310-319.
Carson, E., Fargher, N.L., Geiger, M.A., Lennox, C.S., Raghunandan, K. and Willekens, M.,
2012. Audit reporting for going-concern uncertainty: A research synthesis. Auditing: A
Journal of Practice & Theory, 32(sp1), pp.353-384.
Messier Jr, W.F., Martinov-Bennie, N. and Eilifsen, A., 2015. A review and integration of
empirical research on materiality: Two decades later. Auditing: A Journal of Practice &
Theory, 24(2), pp.153-187.
Public Company Accounting Oversight Board (PCAOB), 2011. Concept release on possible
revisions to PCAOB standards related to reports on audited financial statements.
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