Audit Report: Truthfulness and Public Trust

This assignment examines the importance of audit reports in verifying the accuracy of financial statements prepared by companies. It highlights the responsibility of auditors in conducting independent and objective audits to provide an opinion on the fairness and reliability of these statements. The assignment emphasizes that audited financial statements are more trustworthy than unaudited ones, especially for public companies where stakeholders' interests need protection. It also touches upon the key elements of an audit report, its structure, and the intended audience.

ACCG925 – Individual Assignment Template
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Contents
Part 1: The key changes to audit report. With focus on the similarities as well as any
differences between PCAOB and the International Auditing and Assurance Standards Board
(IAASB) auditing reporting requirements.................................................................................3
Part 2: Explain the reasons/motivation for the changes and critique whether these changes are
likely to achieve their aims........................................................................................................5
Part 3: Outline the likely impact of the audit reporting on audit practice..................................6
References..................................................................................................................................7
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Part 1: 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.
The audit report presents the truthfulness of the financial statement about giving the view of
the financial position of the company. The various users of the financial statement are
investors, government; tax Authorities etc. (Gipper, et. al., 2015). The similarities and
differences of the audit report requirement between PCAOB and international Auditing and
Assurance board are given below:
PCAOB IAASB
Not provided yet but will come into force
with IAASB.
The date with which it will be effective is the
calendar year 2016
Only public companies are covered by the
PCAOB.
The requirements are issued for all the
companies except for KAM and their naming
partners.
The audit report should describe all the
“Critical audit matters”.
“Critical audit matters” implies the matters
that are material for the financial statement of
the company and can seriously influence the
decisions of financial statement users.
The “Key audit matters” should be included
and clearly stated in the audit report.
“Key audit matters” are the areas in the audit
of the financial statement that is of most
significant nature. These are identified by the
auditors after discussion with that charge
with the governance of the company.
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The going concern concept will be
considered by the PCAOB.
The going concern concept will be re-
evaluated by the management of the
company and the auditors if any severe
uncertainty arises which will affect the ability
of the organization to continue in future.
The auditor is required to evaluate the other
information of the financial statement and
describe their effect on the financial
statement.
The other information of the financial
statement is regarded as a separate proposal
by IAASB. This should be evaluated and
reported in the separate section of the audit
report of the financial statement.
The format of audit report is not given by
PCAOB
The opinion of the auditors will be given at
top of report.
The audit report contains the responsibility of
the auditor regarding conducting an audit of
the entity in a separate section.
PCAOB has not defined any other statement
to be attached to the audit report.
The audit report will include the statement of
the auditor’s independence and other ethical
requirements. Such as dependence on the
work of an expert in certain cases (DeFond
and Lennox, 2017).
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Part 2: Explain the reasons/motivation for the changes and critique whether these
changes are likely to achieve their aims.
The changes in the audit reporting requirement are done with the objective to provide a better
transparency in the audit report provided by the auditor of the company after analyzing the
financial statement of the company (Lawson, et. al., 2017). The following changes are made
by the IAASB and PCAOB in the audit reporting format:
Key Audit Matters (KAM ): The KAM is the important matters of the company that needs
to be reported in the audit report. These matters can affect the financial position of the
company. The KAM is identified by the auditor along with the management of the company.
Critical Audit Matters: These matters are same as KAM introduced by the IAASB. But
these matters are identified by the auditor of the company independently. These Critical
Audit Matters are used by the PCAOB to identify the important areas of the financial
statement that are important for the audit.
Going concern: the financial statement of the company is prepared as per the going concern
concept. Going concern implies that the company will remain in operation for the existing
future. The IAASB wants to state the uncertainties that happened in the financial area that can
affect the going concern of the organization.
Representation of other items: the financial statement contains some other items which are
not presented in the statement of profit and loss account and the balance sheet of the
company. But this information is material to the financial position of the company, therefore,
it has to be presented in the financial statement. The new IAASB audit report format requires
the management of the company to present this other information of the company in a
separate section with the financial statement.
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Part 3: Outline the likely impact of the audit reporting on audit practice.
The audit report is the opinion given by the auditor on the financial statements prepared by
the management of the company. The management of the company is responsible for the
preparation of the financial statement for the financial year showing the business activities
and the position of the company in the financial term. The audit report should be prepared
with integrity and subjectivity. The main objective of the audit report is only to give an
opinion on the truthfulness of the financial statement prepared by the company (Rao, 2011).
The audit report prepared by the auditor should be easy to understand by the general public
and investors. The audit report should state the responsibility of the auditors while conducting
the audit of the financial statement and then the opinion of the auditor is given. The audit
report should be specific and does not indicate two meanings. The audit report generally
contains three paragraphs in its report.
 The responsibility of the auditor while conducting an audit.
 The areas covered by the auditor while conducting an audit.
 Finally, the opinion should be given by the auditor on the financial statement of the
company.
The user of the financial statement finds the audited financial statement more trustworthy
than an unaudited financial statement. The public company contains funds of the general
public and these funds should not be lavishly used by the promoters of the company. The
audit report helps the stakeholder is safeguarding their interest (Tepalagul and Lin, 2015).
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References
 DeFond, M.L. and Lennox, C.S., 2017. Do PCAOB Inspections Improve the Quality
of Internal Control Audits?. Journal of Accounting Research, 55(3), pp.591-627.
 Gipper, B., Leuz, C. and Maffett, M., 2015. Public audit oversight and reporting
credibility: Evidence from the PCAOB inspection regime (No. w21530). National
Bureau of Economic Research.
 Lawson, B.P., O'Hara, V. and Spencer, A.W., 2017. Updates and Comparisons
Regarding Changes to the Audit Reporting Model in the United States, United
Kingdom, and the European Union. Journal of Corporate Accounting &
Finance, 28(5), pp.9-22.
 Rao, N., 2011. A Modest Proposal: Abolishing Agency Independence in Free
Enterprise Fund v. PCAOB.
 Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.
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