Enhanced Auditor Reporting in Australia: A Case Study of AMP Limited

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Enhanced Auditor Reporting
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Topic: How is Enhanced Auditor Reporting being embraced in Australia?
Introduction
Investors and other users of financial reports had for a long time criticized the manner in
which the auditors were giving their opinion on entities' annual performance. The previous
system allowed auditors to give a pass or fail opinion. Auditors' opinion on the financial used
to be a one-page report. Investors and other users of financial statements wanted an
insightful opinion as well as transparency from auditors. More investors, in particular,
wanted auditors to outlines to establish the critical areas in the financial reports and how
such areas influenced their final opinion (Asare & Wright, 2012, p. 132).
Investors wanted an introduction of an enhanced auditor reporting system regarding
insightfulness and transparency. Although the insight and transparency objectives were to
be the same globally, each country was meant to have its specific measures of achieving
them (Vallabhaneni, 2015, p. 87). In other words, particular requirements put in place by
each country would be different. Likewise, the adoption period was to differ from one
country to another. For instance, while the United Kingdom started the application of
enhanced auditor reporting in 2015, it came into effect in 2016 in Australia (United Nations
Conference on Trade and Development (UNCTAD), 2016, p. 27).
Moreover, there have been different reactions from auditors and investors one year after
the introduction of enhanced auditor reporting in Australia. This report seeks to evaluate
the performance of the introduced changes in the audit report. It is important also to
understand how different stakeholders react to such changes. Lastly, the report will
investigate the effectiveness of the introduced changes in achieving the intended objectives.

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The audited report of the AMP Limited Company has been chosen to be used as a case study
in analyzing the application of enhanced auditor reporting system in Australia.
The AMP Limited Company
The AMP limited Company is listed under the Australian Securities Exchange (ASX) under
ASX code AMP. The company was established in 1849 and operates in Australia, Zealand,
and other countries. AMP operates in the financial industry. As a bank, AMP operates six
segments: AMP bank, Australian Mature, AMP capital, Australian Wealth Protection,
Australian Wealth Management, and New Zealand Financial Services (AMP Limited Group,
2018, p. 17). AMP Limited offers the following products and services to its customers:
Superannuation, investment products, retirement income, financial advice, business advice,
life and disability insurance, residential mortgages, and bank transactions and deposits
among others. AMP Limited has over 5900 employees across Australia and New Zealand.
Just like other ASX listed Companies, AMP limited as already adopted the Enhanced Auditor
Reporting (EAR) by the Australian Auditing and Assurance Standards Board (AUASB) (AMP
Limited Group, 2018, p. 23). The changes can be seen in the companies audited 2017 annual
report drafted on pages 120 to 125 of the report. The 2017 financial reports was audited by
the Ernst & Young Global Limited.
Adoption of Enhanced Auditor Reporting (EAR)
In 2015, the International Auditing and Assurance Standards Board (IAASB) introduced new
requirements for auditor reporting. The requirements were meant to enhance information
value and transparency. To be at par with the international body, the Australian Auditing

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and Assurance Standards Board (AUASB) also adopted similar regulations which became
effective on or after December 15th, 2016 (Moroney et al., 2017, p. 19).
Proposed Changes
Before the introduction of the EAR, the traditional audit report was a one-page document.
The auditors were only required to state whether or not the report had passed based on
their opinion. It was not an auditor's responsibility to provide a more informative and
insightful report. However, the newly adopted requirement advocate for information value
and transparency from auditors (Dagwell, et al., 2015, p. 79).
EAR introduced two main changes in auditor reporting:
First, the new system introduced the key audit matters (KAMs). Auditors are required to list
keys areas that they assessed during the audit and how such areas impacted the entire audit
process. Key audit matters refer to areas that identified to pose significant risks to the
company's performance (Houghton, et al., 2010, p. 213). Such areas include significant
transactions during the financial year, likely misstatements, and key management decisions
like investment valuations and estimations. In their discussion, auditors are required to
explain how they addressed the identified KAMs. Therefore, KAMs was introduced to inform
the investors and other external users of financial information about the discussions that
took place auditor, the management and the company's audit team (Greenhalgh, 2017).
The second aspect of the changes relates to an entity's going concern. Going concern is
referred to a company's ability to continue operating into an unforeseeable future. Under
the traditional auditing system, auditors were only required to point out material
uncertainties that would negatively impact a company's going concern (Brunelli, 2018, p.