Analysis of Auditor Report Changes: IAASB and PCAOB Standards

This report provides an analysis of the major changes in auditor reports, with a focus on the similarities and differences between the International Auditing and Assurance Standards Board (IAASB) and the Public Company Accounting Oversight Board (PCAOB) auditing standards. The report highlights key changes, including the introduction of Key Audit Matters (KAM), the order of the auditor's opinion segment, the disclosure of engagement partner names, and the non-delegable responsibility of auditors. The report also discusses the reasons behind these changes, emphasizing their role in enhancing reporting quality and transparency. Furthermore, it examines the likely effects of these changes on audit practice, emphasizing the importance of auditor judgment and the influence of company-specific factors. The report concludes by highlighting the positive impact of these changes on providing material and efficient information, which can lead to better decision-making. The report also includes references to relevant academic literature.

AUDITORS REPORT

Auditor report
Major changes in the audit report with due concentration on both similarities and
differences betwixt the IAASB and PCAOB auditing standards
After the emergence of GFC (Global Financial Crisis), the requirement of enhancement in the
quality of audit report has become very important. The reason behind this can be attributed to the
fact that provision of enhanced details in the audit report can facilitate better understanding on
the part of users and therefore, various changes have been made in the audit report.
The first change that has been made in the audit report is that a new segment has been framed so
that KAM (Key Audit Matters) can be disclosed to the users. Furthermore, both PCAOB and
IAASB standards exert within their respective framework that KAM must be disclosed in the
audit report (Whitehouse, 2017). However, PCAOB generally provides examples wherein
disclosure of the same might be more appropriate, while the IAASB does not provide details on
such examples. In addition to the same, it can also be observed that both standards exert that at
least one key audit matter must be incorporated in the auditor’s report and if there is no such
matter, then the auditor must take steps to reflect the same in the report through a statement
(PCAOB, 2016). The second key change in the auditor report is that the auditors’ opinion
segment must be reflected first and after that, it must be followed by the basis for such segment
(Whitehouse, 2017). Moreover, after comparing both IAASB and PCAOB standard, it can be
seen that the ordering of such segments under these standards is similar. The third material
change in the audit report is that the auditors must endeavor to disclose the name of their
respective engagement partners so that relevant information can be offered to the users (PCAOB,
2016). However, in association with the IAASB and PCAOB standard, it can be seen that both
these standards necessitate disclosure of the name of auditor’s engagement partner but the way of
providing the same is not similar in both these standards. The next change in the audit report is
that the auditors are now under a non-delegable responsibility to disclose about their steps taken
to fulfill the moral duties. However, even though the provisions relating to this change is almost
similar in both the standards, the key contrast between them is that on one hand, the IAASB
requires that the auditor should make an affirmative statement relating to the same through a
separate segment while on the other hand, the PCAOB does not necessitate the same. The next
key change in the report is that it has now become compulsory for the auditors to reflect a
separate segment that can assist in providing details regarding the material uncertainties in the
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Auditor report
company’ financial statements (Matthew, 2015). Further, it has also become important to address
the effectiveness of disclosures in association with narrow escapes when identification of events
are facilitated that can question the company’s capability to continue as a going concern concept.
Nonetheless, the principles of catering such matters in both the given standards are equivalent in
nature. However, under the PCAOB standard, if such going concern issues are also determined
as critical audit matter, the same disclosure can be made in the segment of CAM and descriptive
paragraphs. Besides, the IAASB standard helps in the specific management disclosure and
responsibilities of the auditor in association with going concern (Tepalagul & Lin, 2015).
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Auditor report
Describe the reasons for changes and explain whether such changes can attain their
objectives
Auditors’ maximized reporting skills is perceived as the most relevant and effective way of
reporting and communication on the part of auditors. Therefore, key changes in the audit report
are material for the enhancement of reporting quality and facilitating the creation of a future for
better international auditor reporting as a whole (Heeler, 2009). Moreover, since such auditor
report is vital for delivering the key outcome of the audit procedure, proper developments in such
report had become necessary in order to make it more valuable to the users. Overall, the
emergence of new material changes in the audit report can play a key role in reflecting
significant changes in practice so that the goals of IAASB can be efficiently obtained.
The International Auditing and Assurance Standards Board believe that material variations in the
auditor report can surely possess a positive influence upon the entire process because it not only
facilitates in greater transparency but also in greater informational value. This audit practice can
assist in gaining enhanced attention from the management that can in turn influence the focus of
auditors towards material matters that can influence decision-making (Holland & Lane, 2012).
On a whole, development of audit report can play a key role in catering to the risk-based
procedure of an audit and what those who are charged with governance must disclose.
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Auditor report
Outline the most likely effect of audit reporting on the audit practice
In the corporate reporting process, an auditor plays the most significant role in operating like an
unbiased provider of assurance. Furthermore, it must be noted that possessing an effective
influence upon the process of auditing cannot alone help in sharing information apart from the
judgment of the auditor. Besides, although material variations in the audit report can provide
meaningful and relevant details to the users, matters requiring utmost attention from the auditors
are the concern as it is related to a professional opinion as a whole (Coram et. al, 2011). In
addition, the company size, its nature, and other scenarios of audit engagement within the
company can also affect the number of matters in the audit process forming part of an audit
report. Overall, if the number of audit concerns is immensely high, an auditor may face more
complications to assess whether the matter is associated with a key audit matter or not. Further, if
the engagement of auditor in such process is very high, they have to be more prudent and
responsible while conducting their duties (Hoffelder, 2012). This is the reason why auditing of a
high-quality nature can result in the provision of material and efficient information that can
further result in better decision-making.
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Auditor report
References
Coram, P, Mock, T. J, Turner, J & Gray, G 2011, ‘The communicative value of the auditor’s
report’, Australian Accounting Review vol. 21, no. 3, pp. 235-252.
Heeler, D 2009, Audit Principles, Risk Assessment & Effective Reporting. Pearson Press
Hoffelder, K 2012, New Audit Standard Encourages More Talking, Harvard Press.
Holland, K. & Lane, J 2012, ‘Perceived auditor independence and audit firm fees’, Accounting
and Business Research vol. 42, no. 2, 115-141.
Matthew S. E 2015, ‘ Does Internal Audit Function Quality Deter Management Misconduct?’,
The Accounting Review, vol. 90, no. 2, pp. 495-527
PCAOB 2016, Accounting standards, viewed 29 September 2017
https://pcaobus.org/Standards/Auditing/pages/default.aspx
Tepalagul, N. & Lin, L 2015, ‘Auditor Independence and Audit Quality A Literature Review’,
Journal of Accounting Auditing & Finance, vol. 30, no. 1, pp. 101-121.
Whitehouse, T 2017, PCAOB’s reorganized auditing standards rule book takes effect, viewed 29
September 2017 https://www.complianceweek.com/blogs/accounting-auditing-update/pcaobs-
reorganized-auditing-standards-rule-book-takes-effect#.Wc8jY1uCzIU
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