The International Auditing and Assurance Standards Board (IAASB) has released its new and revised Auditor Reporting Standards.
Arnold Schilder, IAASB chairman, said: "These changes will reinvigorate the audit, as auditors substantively change their behavior and how they communicate about their work.
"Informed by extensive research and global outreach to investors, regulators, audit oversight bodies, national standard setters, auditors, preparers of financial statements, audit committee members, and others, the final International Standards on Auditing (ISAs) represent a momentous—and unprecedented—first step. Now, we must study, promote, and plan for the effective implementation of the new and revised standards."
The most notable enhancement is the new requirement for auditors of listed entities’ financial statements to communicate "Key Audit Matters" — those matters that the auditor views as most significant, with an explanation of how they were addressed in the audit.
The IAASB has also taken steps to increase the auditor’s focus on going concern matters, including disclosures in the financial statements, and add more transparency in the auditor’s report about the auditor’s work.
ACCA (the Association of Chartered Certified Accountants) has welcomed the changes to ISAs, saying that the improvement in auditor's reports are crucial to the future value of audits, enhancing both transparency around the audit and innovation in audit reporting.
Robert Stenhouse chair of ACCA’s Global Forum for Audit and Assurance, explained: "ACCA believes audit has a very important place in society. It provides public value through increasing confidence in financial reporting.
"For global capital markets this facilitates the efficient allocation and use of capital. The benefits of audit are also strongly felt in the public and not for profit sectors. The new standards are consistent and clear, and above all relevant across a very wide user base.
"These new standards are more challenging for the auditor, but with this comes a great opportunity. This has been an important and long-running project that does not just codify existing best practice, but makes radical changes to audit reporting.
"The new standards allow scope for auditor judgment to tailor reports to individual client circumstances so that best practice can emerge. How auditors communicate their work is fundamental to understanding the audit and the value it brings."
The new and revised Auditor Reporting standards will be effective for audits of financial statements for periods ending on or after December 15, 2016.