ACCG925 - Audit Report Changes

This report analyzes the significant changes in audit reporting standards introduced by the PCAOB and IAASB, focusing on critical audit matters and their implications for auditor liability and financial statement transparency. It discusses the motivations behind these changes, critiques their potential effectiveness, and outlines the expected impact on audit practices. The report emphasizes the importance of transparency and professional skepticism in enhancing the quality of audits and fostering better relationships between auditors and investors.

ACCG925 – Auditing & Assurance Services
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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.
The notable changes in the model of audit report of the U.S. Public Company
Accounting Oversight Board (PCAOB) authorizes auditors to exhibit the critical Audit
Matters (CAM) as an additional requirement. The purpose of the change in audit report
standard was to make it more explanatory and put probable liability on auditors’ as it is
argumentative in nature. The essence of CAM and its association with the auditor’s liability
has varied complications. This is due to the fact that, as the participants tend to evaluate the
liability of auditors (Gimber, Hansen & Ozlanski, 2016). It is necessary to conduct a
comprehensive research on preliminary evidence to be aware of the major changes in audit
report avoiding unwanted consequences. The experimentations help standard-setting process
of PCAOB and aid the auditors to adjust with the potential changes. The auditor’s report is
beneficial for generating rectified financial statements. On the other hand, International
Auditing and Assurance Standards Board (IAASB) is constantly changing their way of audit
reporting by analyzing responses from preparers, users, regulators, assurance firms and
external audit (Simnett & Huggins, 2014). IAASB changes the audit reporting pattern with
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the support of extensive research on stakeholder outreach, international research and public
consultation (IFAC.org, 2015).
Communicational gaps are revived between the investors and auditors along with other
personnel of the governing body. Management with the assistance of the governing personnel
is responsible to administer the declaration of financial statements with more sincerity.
Auditors’ are assigned to note the high audit risk areas with transparency, which can help in
benefiting the governing personnel during the rectification process. Auditor’s report assists
the users to understand the financial performance in conformance with the entity’s
management system. Key Audit Matters (KAM) is significant to judge high risk areas in the
financial statements of current financial period of an entity. The PCAOB focuses on
independent auditor’s responsibility to meet the interests of the investors and public by
maintaining adequate norms related to the capital market and securities laws. In addition, it
evaluates specific audit quality, performance, compliance, training, in relation with client
retention and acceptance, independent standards and policy establishments (Gunny & Zhang,
2013). Critical audit matters are stated by assessing high audit risk areas and issues related to
material misstatement (PCAOB, 2017). Financial statement estimations and the timing of
transactions are the key areas that seek fine judgment of the auditors. There are a lot of
similarities in advanced requirements of auditing reporting between the PCAOB and IAASB
(PCAOB, 2017a)
Explain the reasons/motivation for the changes and critique whether these changes are
likely to achieve their aims.
The changes in the PCAOB are to enable legitimate financial statements, which are
authorized by strict auditors and generate strong interests to develop proper relationship
between the investors and audit reports. The changes are adopted after several years of
through research by the acknowledging investor advisory group, public comments, and
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standing advisory groups of PCAOB (USA.gov, 2017). Updated audit reporting model is
essential for understanding the complications and global operations of various companies.
The growing issues of financial and market challenges, use of estimates and measurements
make audit more unfair. There are situations, when an auditor helps to divert the challenging
circumstances of a company by taking complex judgments. Auditor’s report has all the
required elements that help the investors to perceive management functionality passively. The
changes in the reporting structure help investigators to fulfill the asymmetry between the
investors and financial management of an organization. An advanced report provides the
investors the ability to critically examine and synthesize the growth of the company through
its financial estimates. There will be a proper hint of unusual and high risk transactions in the
changed model of audit reports authorized by PCAOB. The need for transparency is expected
to achieve higher benefits without getting itself engaged in economic crisis (Delloite, 2015).
Refurbished model of the auditor’s report guide users to understand the company’s financial
position rather than scrolling it to find pessimistic opinion by its performances. New audit
facility offers audit committees a privilege to master greater insights by scrutinizing the audit
quality in the case of same industry selections. Modern reports are going to ensure
considerable involvement of management accountants as well as financial reporters to
improve the refinement of data provided to the end users. This can help to eradicate the
complexities between company regulators and the auditors. The objective of the improved
form of auditing is to ensure enhance professional skepticism along with the on- going
concerns and audit quality without compromising the sincere work effort of the company’s
accountants (Nelson, 2009). Auditor’s report is resourced from financial system and the
disclosures of the on-going issues allow better operations of financial reporting.
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Outline the likely impact of the audit reporting on audit practice.
The PCAOB standards are implemented in the modified version of audit report. It is
mandatory to create value for emerging companies, business development and investment
companies, dealers and brokers, and stock saving and purchase of employees. PCAOB wants
to implement a single audit by replacing all the diversified variants. It results in fair value
exemplar and prominent accounting estimation of a company (PCAOB, 2017). The pricing of
financial instruments and projection of its measurements in investor market are feasible to
confirm fruitful standard setting of a company. The estimates of internal accounting are often
focused on creating dilemma asserting risks during auditing process audit. Auditors
themselves have to indulge deeply to apply professional skepticism addressing the challenge
of potential management account estimation. Auditors need to promote up-to-date auditing
techniques and valuation (Christensen, Glover & Wood, 2012).
There are certain stages of audit verification to strengthen the work of auditor.
Supervision of other senior auditors assures the division of responsibility to adhere the
accounting solutions of a company. Therefore, reporting on different areas of audit in a
company including the risk of high misstatement of materials and lack of performance
analysis are omitted (Zhu, Wang, Hu, Ahn, Hu & Yau, 2011). There is always a chance of
including additional requests and amendments by the staffs through comments and revisions.
Hence, it can be inferred that the proper understanding of the reports can have a significant
impact on the overall auditing practices
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References
Christensen, B.E, Glover, S. M. & Wood, D. A (2012). Extreme estimation uncertainty and
audit. Current Issues in Auditing, 7, 1, 36-42.
Delloite. (2015). Clear, transparent reporting the new auditor’s report. Retrieved September
21, 2017, from
https://www2.deloitte.com/content/dam/Deloitte/za/Documents/governance-risk-
compliance/ZA_ClearTransparentReporting_TheNewAuditorReport_072015.pdf
Gimbar, C., Hansen, B. & Ozlanski, M. E. (2016). Early evidence on the effects of critical
audit matters on auditor liability. Current Issues in Auditing, 10, 1, A24-A33.
Gunny, K. A., & Zhang, T. C. (2013). PCAOB inspection reports and audit quality. Journal
of Accounting and Public Policy, 32, 2, 136-160.
IFAC.org. (2015). New and revised auditor reporting standards and related conforming
amendments. Retrieved September 21, 2017, from
https://www.ifac.org/system/files/uploads/IAASB/Audit%20Reporting-At%20a
%20Glance-final.pdf
PCAOB. (2017, June 30). Standard-setting update office of the chief auditor. Retrieved
September 21, 2017, from https://pcaobus.org/Standards/Documents/Q32017-Standard-
Setting-Update.pdf
PCAOB (2017a, June 1). The auditor's report on an audit of financial statements when the
auditor expresses an unqualified opinion and related amendments to PCAOB
standards. Retrieved September 21, 2017, from
https://pcaobus.org/Rulemaking/Docket034/2017-001-auditors-report-final-rule.pdf
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Nelson, M. W. (2009). A model and literature review of professional skepticism in auditing.
Auditing: A Journal of Practice & Theory, 28, 2, 1-34.
Simnett, R. & Huggins, A. (2014). Enhancing the auditor's report: To What Extent is There
support for the IAASB's proposed changes?. Accounting Horizons, 28, 4, 719-747.
USA.gov. (2017, July 21). Securities and exchange commission. Retrieved September 21,
2017, from https://www.sec.gov/rules/pcaob/2017/34-81187.pdf
Zhu, Y., Wang, H., Hu, Z., Ahn, G. J., Hu, H. & Yau, S. S. (2011). Dynamic audit services
for integrity verification of outsourced storages in clouds. IEEE Transactions On
Services Computing, X, X, 1-13.
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