Future of audit reporting

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Future of audit reporting Liz Stamford Audit & Insolvency Leader Chartered Accountants Australia and New Zealand David Sauer Principal, David Sauer Chartered Accountant Auditor Reporting The

1 Future of audit reporting Liz Stamford Audit & Insolvency Leader Chartered Accountants Australia and New Zealand David Sauer Principal, David Sauer Chartered Accountant Auditor Reporting The preparation of these new style reports will result in more intense communication with management and those charged with governance. The public benefit hopefully will be better understanding of companies and their audits The new auditor reporting standards are the biggest change to auditing in decades. The market is demanding more information, and these changes respond to those demands Fayez Choudhury CEO, International Federation of Accountants Professor Arnold Schilder Chairman, International Auditing and Assurance Standards Board Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 1

Poll What type of entities do you mostly audit?

proprietary Not for profit Government or government agencies Other small or medium entity Other None

Australia and New Zealand 3 Where and When?

requirements in 2013 PCAOB consulting on US KAM equivalent standard International standard applicable

2 Poll What type of entities do you mostly audit? Publicly listed or listed issuer FMC Reporting Entities with higher public accountability Large proprietary Not for profit Government or government agencies Other small or medium entity Other None Copyright 2015 Chartered Accountants Australia and New Zealand Copyright 2015 Chartered Accountants Australia and New Zealand 3 Where and When? Applicable to every country which adopts international auditing standards UK introduced similar requirements in 2013 PCAOB consulting on US KAM equivalent standard International standard applicable for year ends on or after 15 December 2016 Australia and New Zealand same adoption period 31 December 2016 / 30 June 2017 year ends Early adoption Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 2

Expanded auditor report users want more Key audit matters section Listed entities mandatory

enhanced Clearer descriptions: Independence / ethical responsibilities Audit and auditor

2015 Chartered Accountants Australia and New Zealand 5 Application when?

standards made Exposure period comments close: NZ Monday 10 August Aust ASA 720 Monday 10

3 Expanded auditor report users want more Key audit matters section Listed entities mandatory Others - optional Order - Opinion then Basis Unless contrary to law Going concern reporting enhanced Clearer descriptions: Independence / ethical responsibilities Audit and auditor responsibilities Accompanying unaudited information: Report whether consistent Copyright 2015 Chartered Accountants Australia and New Zealand 5 Application when? Periods ending on or after 15 December 2016 Early adoption of full suite permitted once standards made Exposure period comments close: NZ Monday 10 August Aust ASA 720 Monday 10 August Others 30 June 2015 Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 3

4 Application which audit reports? Key audit matters Disclosure of engagement partners name Disclosure reporting to TCWG of independence International Australia NZ Listed entities Listed entities Listed issuer * Others - voluntary Listed entities Listed entities Others voluntary Others - voluntary Where required by law or regulation All auditor reports All auditor reports Other features All audit reports All audit reports All audit reports * See next slide Copyright 2015 Chartered Accountants Australia and New Zealand 7 NZ: Key audit matters from 31 December 2018 FMC reporting entity with higher level of public accountability years ending on or after 31 Dec 18 Equity issuers who make a regulated offer (and have more than 50 s/holders) Debt issuers who make a regulated offer Licensed derivative issuers Licensed management investment scheme (MIS) managers (in respect of the financial statements of the MIS they manage) Recipients of money from conduit issuers Registered banks Licensed insurers Credit unions Building societies Any other entity designated as having a higher level of public accountability by the FMA. Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 4

5 Proposed elements of auditor reports Opinion Basis of opinion Audit Comment on Going Concern Basis of Accounting Key Audit Matters Emphasis of Matter Audit comment on Other information Descriptions of auditor responsibilities Judged by auditor to be most significant in the audit (why) Where located in financial report Audit approach Governance responsibility / auditor reads Nothing to report / Material misstatement Some auditor responsibilities can be in an Appendix Report on Regulatory / Other Matters Copyright 2015 Chartered Accountants Australia and New Zealand 9 Key audit matters All rights reserved. 5

New Zealand 11 What are key audit matters?

6 What are Key Audit Matters? Those matters that, in the auditor s judgement, were of most significance in the audit of the current-period financial statements Copyright 2015 Chartered Accountants Australia and New Zealand 11 What are key audit matters? Item Mgmt TWCG Significant auditor attention Key audit matter Opinion Star t here Risk Higher assessed risk of material misstatement Significant risks identified under ASA 315 Judgement Significant for both auditor and management Accounting estimates identified as having high estimation uncertainty Events Effect on audit of significant events or transactions during the year Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 6

7 Which matters required significant auditor attention? Item Mgmt TWCG Significant auditor attention Key audit matter Opinion 1 Always consider Areas of higher assessed risk of material misstatement or significant risks identified under ASA 315 Significant auditor judgements relating to areas of significant management judgement The effect on the audit of significant events or transactions during the year Copyright 2015 Chartered Accountants Australia and New Zealand 13 Which matters were of most significance? Item Mgmt TWCG Significant auditor attention Key audit matter Opinion Auditor considers Nature and extent of communication with TCWG Importance to intended users understanding Nature and extent of audit effort required Nature, complexity, subjectivity of the related accounting policy Nature and materiality of corrected and uncorrected misstatements Severity of relevant identified control deficiencies Difficulties in applying audit procedure, evaluating results, and obtaining relevant and reliable evidence Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 7

8 Documentation of professional judgements Item Mgmt TCWG Significant auditor attention Key audit matter Opinion Don t have to Must document Must document: Why a matter that required significant auditor attention is or is not a KAM If no KAMs, why If a KAM is not communicated, why (e.g. precluding law) Do not need to document: Why matters communicated to TWCG did not require significant auditor attention Copyright 2015 Chartered Accountants Australia and New Zealand 15 Features of Key audit matters For each KAM: Why was it one of the most significant matters? How was it addressed in the audit? Where are the related disclosures? Descriptions of matters Must not include opinions on elements of the financial statements Must be specific to a reported matter, without generalisation If no KAM to communicate, state so Still report under KAM when an item is in an Emphasis of Matter or Other Matter o KAM is not a substitute for opinion Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 8

Going concern Reporting on going concern Respective responsibilities described GC material uncertainty addressed in separate section Previously was in

9 Going concern Reporting on going concern Respective responsibilities described GC material uncertainty addressed in separate section Previously was in EOM Must challenge adequacy of disclosures for close calls Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 9

10 Example: Included with descriptions of responsibilities As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Entity to cease to continue as a going concern. Copyright 2015 Chartered Accountants Australia and New Zealand 19 Example: Going concern uncertainty para Basis for Opinion Material Uncertainty Related to Going Concern We draw attention to Note 6 in the financial report, which indicates that the Company incurred a net loss of ZZZ during the year ended 30 June 20X1 and, as of that date, the Company s current liabilities exceeded its total assets by YYY. As stated in Note 6, these events or conditions, along with other matters as set forth in Note 6, indicate that a material uncertainty exists that may cast significant doubt on the Company s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters. Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 10

11 Reporting on Other Information ASA / NZ 720: What the auditor must do Read the other information and consider whether there is a material inconsistency between: the other information and the financial statements; and the other information and the auditor s knowledge obtained in the audit, (in the context of audit evidence obtained and conclusions reached in the audit) Work required whether required before or after issue of audit report Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 11

12 Other information section Included when: auditor has received some or all info at date of audit report; or listed entity auditor expects to receive other info after date of audit report. In Other information section Statement management responsible Identify the information Statement outside opinion so no assurance Description what auditor must do in reading, considering, reporting Statement, either: Nothing to report; or Description of uncorrected material misstatement Copyright 2015 Chartered Accountants Australia and New Zealand 23 Other changes All rights reserved. 12

13 Independence Affirmative statement of independence and compliance with ethics Including reporting to those charged with governance Relevant source of ethics identified Copyright 2015 Chartered Accountants Australia and New Zealand 25 Appendix may include these auditor roles / responsibilities Exercise of professional judgement and maintenance of professional scepticism Risks of material misstatement due to fraud or error Understanding of internal control without expressing an opinion on its effectiveness Evaluation of the accounting policies, accounting estimates and related disclosures Going concern Communications with those charged with governance Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 13

14 Implementation Roadmap Plan your timetable to 2016 Assess impacts Develop firm s policies and responses Communicate with clients Education Trial run Apply for periods ending on or after 15 Dec 2016 June Dec Jun Dec Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 14

Assess impacts Quantity / nature of additional work Added focus on financial statements / preparers role New material on public record Ongoing

Accountants Australia and New Zealand 29 Policies and responses Design of reports and programs Develop judgment / guidance QA / Audit policy and

15 Assess impacts Quantity / nature of additional work Added focus on financial statements / preparers role New material on public record Ongoing monitoring: - Final standards / reviews - Interpretation by firms - Responses of report users - Responses of insurers Copyright 2015 Chartered Accountants Australia and New Zealand 29 Policies and responses Design of reports and programs Develop judgment / guidance QA / Audit policy and procedure, e.g. application of KAMs hot reviews Capacity to explain Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 15

Communicate with clients Advise / illustrate coming changes Agree any new timetable Address audit costs / fees Highlight client role in financial

Copyright 2015 Chartered Accountants Australia and New Zealand 31 Opinion Basis of opinion Final opportunity for comments and questions Audit

16 Communicate with clients Advise / illustrate coming changes Agree any new timetable Address audit costs / fees Highlight client role in financial statements What changes can they make that alter the report contents? Copyright 2015 Chartered Accountants Australia and New Zealand 31 Opinion Basis of opinion Final opportunity for comments and questions Audit Comment on Going Concern Basis of Accounting Key Audit Matters Emphasis of Matter Audit comment on Other information Descriptions of auditor responsibilities Report on Regulatory / Other Matters All rights reserved. 16

17 References - CAANZ Auditor reports ED 01/15 - CAANZ page with links to key documents Auditor reporting on other information ED 02/15- CAANZ page and links Discussion Paper - Revolutionising Reporting: Why Care? Copyright 2015 Chartered Accountants Australia and New Zealand 33 References IAASB support material Auditor reporting toolkit Auditor Reporting Key Audit Matters Auditor Reporting Illustrative Key Audit Matters Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 17

18 References UK experience Extended auditor s reports: A review of experience in the first year Report by UK Financial Reporting Council, March Copyright 2015 Chartered Accountants Australia and New Zealand 35 Your presenter today: David Sauer B. Com. FCA Principal David Sauer, Chartered Accountant David offers a sounding board and resource for all matters relating to technical financial reporting, audit, reporting legislation and professional standards. A practising Registered Company Auditor and member of the Companies Auditors and Liquidators Disciplinary Board, David uses 30 years of experience in professional services to help you understand what you need to do in a changing world. Before establishing his own practice, David worked for eleven years at Deloitte and Moore Stephens. You may queries arising from this presentation to David at david.sauer@davidsauer.com.au Copyright 2015 Chartered Accountants Australia and New Zealand All rights reserved. 18

19 37 Don t miss upcoming Date These LiveOne sessions are also available as OnDemand Recordings Topic 21 July 2015 Revenue Recognition Series - Session Two: IFRS 15 Application for Not-for-Profit entities: 14 & 21 August 2015 Reporting swiftly, informatively and error free series 18 August 2015 Valuing Intellectual Property using the Multi-period Excess Earnings Method 25 August 2015 Essential SMSF Update September 2015 Corporate Tax Series - Tax consolidation 30 September 2015 Harnessing the power of Big Data Series 15 October 2015 Harnessing the power of Big Data - Session 2: Big data influenced strategic modelling 15 October 2015 Strategic SMSF sessions Implications of bankruptcy and insolvency on SMSFs All rights reserved. 19

20 Don t miss upcoming LiveOne sessions are also available as OnDemand Recordings Available until Topic 1 September 2015 Advanced Corporate Finance Series 30 September 2015 Mastering the Art of Buying or Selling a Practice series 8 October 2015 New Manager Series - Management and Leadership Essentials 17 February 2016 Warning Signs for Companies in Distress 10 March 2016 Business valuation family law litigation series 7 May 2016 Managing Bank Relationship Risk 30 June 2016 Managed Fund Essentials 30 June 2016 Industry Risk Series incl. Logistics, Retail, Pubs & Clubs 30 June 2016 Sustainability Series - Session One: Reporting on sustainability the ASX Corporate Governance Guidelines 39 More Online Training opportunities Find more LiveOne online training opportunities at charteredaccountants.com.au/liveone Subscribe to the elearning Update to receive updates on LiveOne and elearning opportunities You can now track, report and register for LiveOne events to support your career pathway by downloading the FREE CPDconnect App from either itunes or Google Play All rights reserved. 20

New and Revised Auditing Standards Presentation by: CPA Stephen Obock Associate Director, KPMG 30 May 2017

New and Revised Auditing Standards Presentation by: CPA Stephen Obock Associate Director, KPMG 30 May 2017 Uphold public interest Presentation agenda Overview of new changes ISA 700 Forming Audit Opinion