ACCG925: Audit Report Changes - IAASB and PCAOB Reporting Requirements

This report provides a detailed analysis of the key changes in audit reports, focusing on the similarities and differences between the reporting requirements of the Public Company Accounting Oversight Board (PCAOB) and the International Auditing and Assurance Standards Board (IAASB). The report explores the motivations behind these changes, such as the need for more informative audit reports in the wake of global financial crises, and critiques whether the changes are likely to achieve their aims of enhancing auditor communications and providing more relevant information to users. Key changes discussed include the introduction of Key Audit Matters (KAM), disclosure of the engagement partner's name, the mandatory placement of the opinion section first, statements on ethical responsibilities and independence, and the inclusion of a section on material uncertainties. The report also outlines the likely impact of these changes on audit practice, emphasizing the role of auditor judgment and the influence of company size, complexity, and the nature of the audit engagement on the application of these changes. The report concludes by referencing several academic sources to support its analysis.

ACCG925 – Individual Assignment Template
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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 opinion of auditors on the financial statements is often valued, however owing to the
prevalence of global financial crisis, many have asked for the auditor’s report to be more
informative in nature so that relevant information can be offered to the users (Church et. al,
2012). This is the reason why key changes have been made in the audit report.
Firstly, a new section has been framed to communicate the key audit matters (KAM) so that
items possessing immense significance can be provided to the users. Both IAASB and
PCAOB standards necessitate KAM to be offered in association with the audit of the present
tenure. However, the PCAOB offers illustrations of situations wherein it may be appropriate
to disclose KAM/CAM of the past tenure. These illustrations are not offered by the IAASB
standards. Further, both standards reflect that at least one KAM must form part of the
auditor’s report but if there are no KAM/CAM, then a statement to the same must be
reflected in the report. Secondly, it has been decided that the auditors will also disclose the
name of the engagement partner in their report for enhanced knowledge. In relation to the
audit of listed companies, both PCAOB and IAASB standards require the disclosure of
engagement partner’s name but the manner of disclosure is different under both standards.
Thirdly, in relation to audit, the opinion section of auditors has become compulsory to be
presented first and it must be followed by the basis for opinion section. The ordering of these
sections in both standards is similar in nature. Fourthly, in the audit report, it has become
necessary for auditors to provide a statement regarding their fulfillment of ethical
responsibilities and independence of auditors (Jeanette, 2014). Even though provisions
regarding this change in auditing report are same under both IAASB and PCAOB, the
IAASB separately requires the auditors to make an affirmative statement regarding the same.
Fifthly, it has now become mandatory for auditors to provide a separate section that offers
relevant information regarding material uncertainties in the financials of the company
(Ruhnke, 2014).
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Explain the reasons/motivation for the changes and critique whether these changes are
likely to achieve their aims.
Enhanced reporting by auditors is observed as significant to the perceived value of audit of
financial statements and hence, to the continued significance of the auditing profession. The
reason behind the emergence of such changes in the auditing report can be attributed to the
fact that such changes can assist in laying down the foundation for the future of international
auditor reporting and enhanced auditor communications (Johnstone et. al, 2014). Besides,
since the auditor’s report is the main deliverable addressing the output of the audit procedure,
enhanced requirements had become compulsory in the report so that it becomes more
valuable and relevant to the users. The implementation of new changes in the report can assist
in presenting a significant variation in practice, with appropriate collaboration required by
participants in the supply chain of financial reporting so that the IAASB’s objectives of audit
report can be achieved. The IAASB believes that such new audit changes can have a positive
impact on the audit process in addition to enhanced informational value and enhanced
transparency. Further, such changes will also affect the auditor’s focus on matters that are
required to be reported especially the ones that can indirectly result in an enhanced
professional skepticism (Riddle, 2015). Overall, the development of audit report through the
underlying ideologies in the ISA audit can assist in addressing how a risk-based process of
the audit is conducted and what is necessary to be disclosed with those who are charged with
governance (Carcello, 2012).
Outline the likely impact of the audit reporting on audit practice.
Auditor plays a vital role in the process of financial reporting because they act as an
independent assurance provider. It needs to be noted that having a strong insight into the
auditing process, the auditor report is written in a language that does not share information
apart from the audit opinion. Even though the changes in the audit report can play a key role
in maximizing the overall impact of quality reporting, thereby in turn assist in providing
relevant information to the users, yet professional judgement is the main concern because
matters that necessitate significant attention from the auditors is directly associated with such
judgement (Black, 2010). Furthermore, the number of audit matters that must form part of the
audit report may also be influenced by complexity and size of the company, nature of its
environment, and circumstances of the engagement of audit. In simple words, the higher the
number of matters, the more the auditor may need to evaluate whether such forms part of a
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key audit matter. This, in turn, enhances the duty of the auditor because when the engagement
level is high it leads to more responsibility on the part of the auditor.
References
Black, W. K 2010, Epidemics of “Control Fraud” lead to Recurrent, Intensifying Bubbles
and Crises, Working paper, University of Missouri-Kansas City.
Carcello, J 2012, ‘What do investors want from the standard audit report?’, CPA Journal
vol.82, no. 1, pp. 7-12
Church, B, Davis, S & McCracken, S 2008, ‘The auditor’s reporting model: A literature
overview and research synthesis’, Accounting Horizons vol. 22, no. 1, pp. 69-90.
Johnstone, K, Gramling, A & Rittenberg, L.E 2014, Auditing: A Risk Based-Approach to
Conducting a Quality Audit, 10th Edition, Cengage Learning
Jeanette M. F 2014, The Importance and Positive Impact of Independent Audit Oversight,
viewed 26 September 2017
https://pcaobus.org/News/Speech/Pages/11192014_FranzelIARI.aspx
Ruhnke, K 2014, ‘The audit expectation gap: existence, causes, and the impact of changes’,
Accounting & Business Research, vol. 44, no. 5, pp. 572-601
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Riddle, C 2015, Internal Auditing: Assurance & Advisory Services, 3rd Edition, The
Institute of Internal Auditor Research Foundation
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