New audit standards to make financial reports more transparent
Alok Jain, assurance leader at PricewaterhouseCoopers Jamaica, says that within two years, local companies and their shareholders will receive reports on audited accounts which are more transparent.
The International Auditing and Assurance Standards Board (IAASB) has just released new standards - to take effect December 2016 - which Jain described as game-changing, and should lead to reports which disclose the analysis and challenges which went into preparing the report.
The traditional 'pass/fail' approach which comes with an explanation of the grade will be disposed of, Jain told Sunday Business.
What is now a standard two- page report for accounts which have been found to be 'clean' will now grow by several pages under the new standards, which call for "a more informative, discursive and insightful" report, PwC said last Friday in a release.
Jain, citing an example, said "there is a lot of estimation which goes into profit", but that the narrative discussion will now reveal key issues arising in the auditing process, and "will have a lot more details".
He noted as well that for companies with clean reports, the auditor's letter tended to have the same basic wording, but that each report will now feature the peculiarities of the auditing experience for each company; but that no two letters will ever be the same again after December 2016.
The new standards introduce a new requirement for an explicit statement regarding the auditor's independence in all audit reports, which also must identify the person who conducted the audit and project lead by name in audit reports for listed companies.
It also requires the inclusion of 'key audit matters' (ISA 701). "This section will shed light on those matters that, in the auditor's judgement, were of the most significance in the audit of the financial statements of the current period," PwC said in its release.
The auditor's report will also be restructured to put audit and entity-specific information at the front of the report - in particular, the audit opinion will now come first - and issues relating to the health of a going concern will also be given more visibility.
"Both management's and auditor's responsibilities regarding going concern will be described in the new reports. When there is a material uncertainty about the entity's ability to continue as a going concern, this will now be highlighted in a separate, clearly identified section of the report," said PwC.
Jain says the IAASB changes is a response "to calls for enhancement to the standard pass/fail audit report", which he adds "will now become more relevant and informative, and visibly demonstrate the value of the audit".