Iaasb: Invitation to Comment

Topics: Audit, Auditor's report, Auditing Pages: 11 (3222 words) Published: April 28, 2013
Response to IAASB
Improving the Auditor’s Report

The dynamic environment of organisations gives rise to the need for refinement in the standards adopted by the International Auditing and Assurance Standards Board (IAASB). The significance of adopting such change can be seen as a result of corporate failures, such as Enron, Centro and WorldCom. Hence, this justifies IAASB’s proactive approach in regularly updating and improving such standards. This is seen in IAASB’s Invitation to Comment in improving the Auditor’s Report. Suggested improvements in the Auditor’s Report involve the inclusion of Auditor’s Commentary, an auditor conclusion on going concern, explicit statements on any material inconsistencies and prominent placement of the auditor’s opinion. In what follows is a specific assessment of the value that an Auditor’s Commentary may contribute to the users of the financial statements.

Question 1
Overall, we believe the IAASB’s suggested improvements sufficiently enhance the relevance and informational value of the auditor’s report. Firstly, it provides extra qualitative information within the Auditor Commentary, which may allow greater transparency by overcoming the expectations and information gap. Moreover, it increases information value through a more objective report by the use of explicit statements regarding material uncertainties in relation to going concern. This will allow investors and users of the financial statement to make better informed decisions.

However, there may be possible impediments in relation to proceeding with IAASB’s suggested improvements within the auditor’s report. One of the suggestions was to provide ‘additional information…in the auditor’s judgment’. Judgment is based on an individual’s opinion, which does not lead to an outcome of definite relevance and significance. Therefore, the value and relevance of the information provided by the auditor will highly depend on the auditor’s ability; at the same time, the information that users consider relevant will also differ to the auditor’s point of view. The IAASB also suggests that more ‘entity specific information’ is to be provided by the auditors, this may blur the roles and responsibilities of management and auditors, as management is primarily responsible for disclosing entity-specific information. As users may inappropriately rely on the additional information provided by the auditors, it may lead to biased judgments and investment decisions. Moreover, it is very hard to maintain the quality control for this information due to its subjective nature. Furthermore, the auditor’s judgment may lead to a lack of comparability between entities, industries and on an international level. Finally, one of the impediments arising from the suggestions made by the IAASB would be a significant increase in cost of producing the suggested and improved audit report and work overload for auditors. This may result in less capacity for auditors to pay attention to address certain alarming issues to the users, which may significantly affect the quality of audit.

Question 2
As mentioned above, additional information provided is based on the auditor’s judgment. To improve the quality of judgment, the IASB, IAASB and other accounting standard setters can work together to develop a criteria for the auditors, which provides a consistent guideline of what additional information should be provided. These criteria will increase the consistency based on the criteria given to the auditors, which will further allow comparability between the qualitative information amongst firms, industries and over a period of time.

Correspondingly, auditors should not be the providers of original information about the management of the company as it will distort the roles between managers and...
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