Agenda Item L.1 I. Recmmendatins Auditr Reprting Building Blcks A flexible building blcks apprach is needed t ensure that cnsistent, useful and relevant infrmatin is cmmunicated in auditr s reprts acrss jurisdictins abut audits f varius types f entities. 1 The minimum required reprting elements specified in extant ISA 700 2 when auditr reprting is therwise specified by law r regulatin shuld be retained as cre auditr reprting requirements. 3 New cre auditr reprting requirements t be required in a revised ISA 700shuld be determined based n what is deemed apprpriate fr audits f all entities. A different presentatin f the auditr s reprt shuld be explred, mving the auditr s pinin t the beginning f the auditr s reprt, thereby making it mre prminent, fllwed by thse requirements that are tailred t the particular engagement, and then thse that prvide mre standardized infrmatin abut the audit prcess. Flexibility and relevance in auditr reprting shuld be facilitated by: Allwing fr cnditinal auditr reprting requirements that are achieved by the IAASB mandating verarching cmmunicatin requirements t users: (a) (b) Fr sme entities based n their type (i.e., listed r public interest entities (PIEs)) but allwing the natinal standard setters (NSS) the ability t further prescribe the level f detail needed abut the specified auditr reprting element; r Abut specific matters (fr example a general descriptin f the auditr s respnsibility), but allwing flexibility in regard t whether sme f thse matters are included in the auditr s reprt as a whle r incrprated by reference and maintained elsewhere (fr example, a NSS website) prvided that the messaging is cnsistent with the requirements f a revised ISA 700. The Other Reprting Respnsibilities sectin that currently exists under extant ISA 700 shuld be retained in principle, as it allws fr auditr reprting n ther matters that are supplementary t the auditr s respnsibility under the ISAs t reprt n the financial statements. The impact n bth the cnsistency and relevance f auditr reprting under a flexible building blcks framewrk will need t be further explred thrugh discussins with users, regulatrs, and ther stakehlders t evaluate the cnsequences f peratinalizing revisins t the current auditr reprting framewrk (fr example, reduced cmparability f auditr s reprts acrss entities and jurisdictins). 1 2 3 IAASB December 2011 meeting materials Agenda Items 5-A, Prject Prpsal paragraphs 22-27and Agenda Item 5- B,paragraphs73-76,further describe the building blcks apprach. Bth agenda papers are available at http://www.ifac.rg/auditing-assurance/meetings/ls-angeles-califrnia. ISA 700, Frming an Opinin and Reprting n Financial Statements ISA 700, paragraph 43 Prepared by: Diane Jules (February 2012) Page 1 f 15
II. Adpting a Building Blcks Apprach A Respnse t Calls fr Bth Cnsistency and Relevance 1. Investrs and ther users f audited financial statements have indicated that cnsistency is an imprtant feature in auditr reprting. ISA 700 was develped recgnizing the desire fr cnsistent and cmparable auditr reprts. It ntes that cnsistency in auditr s reprts, when the audit has been cnducted in accrdance with ISAs, makes them readily identifiable as audits that have been cnducted in accrdance with glbally recgnized auditing standards. Such cnsistency facilitates the user s understanding f the auditr s reprts and helps t identify unusual circumstances when they ccur. 4 2. Many respndents t the IAASB s May 2011 Cnsultatin Paper (CP), Enhancing the Value f Auditr Reprting: Explring Optins fr Change, expressed a need fr auditr s reprts that allw fr cmparisn f listed and nn-listed entities, as well as entities f all sizes in all industries and in varius jurisdictins, when making investment decisins. This pint has als been highlighted during previus discussins f the IAASB Cnsultative Advisry Grup (CAG). 3. On the ther hand, there was very strng supprt fr a revised auditr s reprt that includes tailred and engagement specific infrmatin. At the same time, further discussins with NSS have indicated that ISA 700 has nt been adpted in certain jurisdictins, r has been mdified, due t the need t prvide fr natinal circumstances (such as a crprate gvernance regime) and regulatry requirements (fr example, reprting n ther infrmatin), suggesting a further lack f cnsistency acrss jurisdictins. This is supprted by the views expressed by respndents t the IAASB s CP wh indicated that cnsistency des nt currently exist under extant ISA 700, and that there is a lack f cmmnality in what is understd by the term cnsistency amng users f audited financial statements. 4. The prpsed building blcks reprting framewrk takes int accunt the principles f cnsistency relevance and flexibility. Fr example: Cnsistency is facilitated thrugh the use f cre reprting requirements; and Relevance and flexibility thrugh the use f cnditinal reprting requirements and retaining, the use f ORR in principle t accmmdate additinal legal and regulatry reprting requirements in lcal jurisdictins. The auditr reprting requirements are further elabrated at Sectin III f this paper, Elements f Auditr Reprting, Including New Placement f Opinin. 5. The building blcks framewrk is intended t be prprtinal and scalable in its applicatin and as such accmmdate differences in the infrmatin needs that may exist between users f audited financial statements f small- and medium-sized entities (SMEs) and thse f listed entities r PIEs. 6. A user respndent 5 t the CP suggested the IAASB shuld facilitate enhanced reprting f varius appraches and nt frm a prescriptive view at this stage as t what is best practice. The Task Frce supprts this view and embraces the premise f the building blcks apprach as set frth in the auditr reprting prject prpsal. The building blcks apprach is sufficiently flexible t allw fr 4 5 See ISA 700, paragraph 4. ICGN Page 2 f 15
respnses t the varied recmmendatins received n cnsultatin, and the existing and emerging develpments in varius jurisdictins aimed at accmmdating and enhancing auditr reprting. 7. Cncerns were expressed n cnsultatin that it wuld be unhelpful fr the IAASB, U.S. Public Cmpany Accunting Oversight Bard (PCAOB), Eurpean Cmmissin (EC), and U.K. Financial Reprting Cuncil (FRC) t mve in different directins in relatin t auditr reprting. While the Task Frce s wrk in the varius areas Insights, Ging Cncern/Other Infrmatin and Clarificatins serve t help t address cmmn auditr reprting issues, the building blcks apprach acknwledges that differences in auditr reprting may cntinue t exist in lcal jurisdictins. 8. Accrdingly in further prmting and enhancing the principles f cnsistency, relevance and flexibility in revising an internatinal standard under the building blcks apprach, the IAASB wuld attempt t accmmdate within a revised auditr reprting framewrk the necessary differences that exist in these jurisdictins. In s ding, the building blcks apprach wuld allw fr the infrmatin needs f users t be addressed in a manner that culd be tailred t different reprting regimes and facilitate the pssibility f having reprting requirements that apply, fr example where law r regulatin requires: Infrmatin abut the audit t be cmmunicated thrugh means ther than the auditr s reprt (fr instance, thrugh expanded reprts f thse charged with gvernance (TCWG)). An expanded use f Emphasis f Matter (EOM) paragraphs fr the audits f listed entities r PIEs. A justificatin f assessments mdel that requires explanatin f audit prcedures applied t address certain risks. Auditr reprting n ther matters, such as prviding an pinin n the effectiveness f internal cntrl ver financial reprting. III. Elements f Auditr Reprting, Including New Placement f Opinin 9. In light f the Task Frce s recgnitin f the need t be innvative and respnsive t users demands fr change, it recmmends that the pinin paragraph be made mre prminent and placed at the beginning f the reprt, as reflected in the master checklist in Appendix 1 t this paper. The Task Frce als determined it necessary t preserve: The minimum required elements f ISA 700 that are necessary t refer t the ISAs in the auditr s pinin (fr example, when law r ther regulatin prescribes the frmat r wrding f the auditr s reprt); 6 and Having a discrete ORR sectin in the auditr s reprt as further described in paragraph23belw. Determinatin f Cre Auditr Reprting Requirements 10. The master checklist in Appendix 1t this paper illustrates the Task Frce s discussins and recmmendatins as t the requisite reprting requirements f a revised ISA 700 auditr s reprt and hw they shuld be mandated and psitined. 6 ISA 700, paragraph 43 Page 3 f 15
11. In develping the cre auditr reprting requirements within the master checklist illustrated at Appendix 1, the Task Frce cnsidered the fllwing: Current minimum required reprting elements that are necessary t refer t the ISAs in the auditr s pinin 7 (see Appendix 2); Additinal auditr reprting respnsibilities under extant ISA 700 (see Appendix 3); 8 Current differences in auditr reprting based n the Building Blcks Subcmmittee s review f a sample f illustrative auditrs reprts frm different jurisdictins (see Appendix 4); and Recmmendatins frm the Insights, Ging Cncern/Other Infrmatin and Clarificatins Subcmmittees. 12. The Task Frce nted the view f SME representatives n Building Blcks Subcmmittee that determining auditr reprting requirements n the basis f entity-type r size, fr example by taking int accunt the needs f SMEs first, wuld g against the ntin f an audit is an audit, and may nt set the right bar fr auditr reprting. Thus, cre auditr reprting requirements were determined, taking int accunt the needs f listed entities as a way f first raising the bar fr auditr reprting fr all entities. With the right baseline fr auditr reprting determined, the specific needs f the SME user cmmunity and PIEs wuld be further cnsidered. Such an apprach wuld help minimize a perceptin amng users that cmpare SME auditr s reprts t thse f listed entities that less infrmatin in auditr s reprts f SMEs meant a less rbust audit. 13. As a result, the Task Frce determined that applying the building blcks apprach wuld fster cnsistency in glbal auditr reprting by retaining a minimum cre set f auditr reprting requirements that wuld be required fr audits f all entities in all jurisdictins. Accrdingly, the revised ISA 700 auditr s reprt wuld include the fllwing cre reprting requirements as illustrated in Appendix 1 t this paper, which wuld be required fr all entities: Current Required Cre Auditr Reprting Requirements All the minimum elements that are currently required under extant ISA 700 and subject t revised language recmmended by the Clarificatins Subcmmittee. See Agenda Item M.1 fr the revised illustrative language with respect t the minimum elements currently required under extant ISA 700 (e.g., management s respnsibilities and auditr s respnsibilities). New Required Cre Auditr Reprting Requirements A new sectin that describes the auditr s respnsibilities and a cnclusin with respect t ging cncern, based n extant ISA 570 9 and subject t the specific wrding recmmended by the Ging Cncern/Other Infrmatin Subcmmittee. See Agenda Item K.1 fr illustrative language. 7 8 9 ISA 700, paragraph 43 The illustrative reprts in ISA 700 include bth the minimum elements when the wrding f the auditr s reprt is prescribed by law r regulatin, and ther required sectins and wrding within ISA 700. ISA 570, Ging Cncern Page 4 f 15
A statement abut cmpliance with ethical respnsibilities including auditr s independence, subject t cnclusins reached by the Clarificatins Subcmmittee. See Agenda Item M.1 fr such illustrative language. Identificatin f the engagement partner(s). See Agenda Item M.1 fr further discussin. Cnditinal Auditr Reprting Requirements 14. T increase the relevance f auditr reprting, the Task Frce prpses that additinal infrmatin in the auditr s reprt wuld be prvided t users thrugh the use f cnditinal auditr reprting requirements. This term is used tw ways within the building blcks apprach: (i)t refer t requirements that the IAASB may determine are nt necessary fr all entities, but shuld be required fr listed entities r PIEs; and (ii) t acknwledge that the wrding f cre minimum auditr reprting requirements r IAASB cnditinal auditr reprting requirements may be prescribed (r best addressed) by natinal law r regulatin (r requirements f NSS). IAASB-Specified Cnditinal Requirements fr Listed Entities and/r PIEs 15. The auditr reprting matters that wuld be addressed by cnditinal auditr reprting requirements include: Auditr cmmentary n specific matters, subject t specific criteria and illustrative language recmmended by the Insights Subcmmittee. See Agenda Item H.1 fr a descriptin f prpsed criteria and illustrative language. Further cmmentary abut ging cncern beynd the descriptin f the auditr s respnsibilities and cnclusin prpsed t be included as a cre auditr reprting element (explained in paragraph 13 and further in Agenda Item K.1). A descriptin f the auditr s respnsibilities with respect t ther infrmatin based n extant ISA 720 10 and that prvides a cnclusin theren. See Agenda Item K.2 fr illustrative language. On an initial basis, the Task Frce des nt believe these requirements shuld be mandated fr all entities, in part due t the strng respnses n cnsultatin fr changes in auditr reprting nt t unduly burden SMEs and their auditrs. Hwever, recgnizing the calls fr cnsistency in auditr reprting, as well as the specific needs f SMEs nted in paragraphs 5 and12 abve, the IAASB will need t cnsider and cnsult n whether this cnclusin is apprpriate. In revising ISA 700, the IAASB may als cnsider prviding further guidance fr reprting n audits f SMEs. Cnsideratin f PIEs 16. As part f its deliberatins, n an initial basis the Task Frce als cnsidered the needs f PIEs mre bradly and nted varius descriptins/definitins fr PIEs that include: All listed entities, and any entity that is (i) defined by regulatin r legislatin as a public interest entity r (ii) fr which the audit is required by regulatin r legislatin t be cnducted in cmpliance with the same independence requirements that apply t the audit f listed 10 ISA 720,The Auditr s Respnsibilities Relating t Other Infrmatin in Dcuments Cntaining Audited Financial Statements Page 5 f 15
entities. Such regulatin may be prmulgated by any relevant regulatr, including an audit regulatr. 11 Thse entities which are f significant public interest because their business, their size, their number f emplyees r their crprate status is such that they have a wide range f stakehlders. 12 Banks, ther financial undertakings and listed cmpanies in general as defined in the Statutry Audit Directive 2006/43/EC. As the financial sectr evlves, new categries f financial institutins have been created under EU law and thus the definitin f PIEs was amended by the prpsal fr a Directive amending Directive 2006/43/EC t als encmpass investment firms, payment institutins, undertakings fr cllective investment in transferable securities (UCITS), electrnic mney institutins and alternative investment funds. 13 17. The Task Frce discussed sme practical challenges arising frm the brad descriptin f PIEs. Cnsideratin was als given t the fact that the definitins f PIEs might include SMEs and nnlisted entities. Because f the varied definitin fr the term PIE, the Task Frce agreed that the user needs fr listed entities wuld be a sufficiently high bar fr determining the cnditinal auditr reprting requirements f a revised auditr s reprt. 18. Hwever, in light f the challenges nted, the Task Frce has nt cncluded whether any f the prpsed cnditinal auditr reprting requirements shuld be mandated fr PIEs, but recgnizes that natinal jurisdictins culd mandate these r ther specific requirements fr PIEs in light f their natinal definitin. In revising ISA 700, the IAASB may cnsider including guidance t this effect. NSS Mandated-Specific Wrding and Placement f Additinal Infrmatin 19. The Task Frce acknwledges that there may be ther mechanisms in place t prvide mre infrmatin t users f audited financial statements. In this regard, it is envisined that factrs such as: A jurisdictin s laws and regulatins that specify the cntent and language f auditr s reprts (fr example, Article 22 f the recent EC prpsals); and The nature f the entity (i.e., whether the entity is a SME r whether it is a PIE), wuld influence the wrding and level f detail and the relevance f the cre and/r cnditinal requirements prvided in the auditr s reprt at the jurisdictin level. 20. Revised ISA 700requirements under the building blcks apprach wuld allw fr flexibility in the placement f certain cre r cnditinal auditr reprting requirements. This wuld include the: Means by which matters are cmmunicated t users f audited financial statements (i.e., either in the auditr s reprt r by ther means as prescribed by lcal law, regulatin r the NSS s auditing standards), and Specific wrding that is used t cnvey such infrmatin. 11 12 13 As defined in Sectin 290 f the Internatinal Ethics Standards Bard s (IESBA) Cde f Ethics fr Prfessinal Accuntants Descriptin f public interest entities (PIEs) in EC prpsed regulatin Discussin f PIEs in Frequently Asked Questin dcument that frmed part f EC prpsals Page 6 f 15
21. Fr example, under the building blcks apprach expanded reprting by TCWG with auditr assciatin theren, as prpsed by the FRC, may be deemed an apprpriate alternative t including a sectin in the auditr s reprt n auditr cmmentary, prvided that there is reference in the auditr s reprt that the infrmatin is made available t users thrugh ther means. 22. Als, fr example, while the TF is prpsing that a statement regarding cmpliance with ethical requirements be required fr all entities, it recgnizes the need t allw fr flexibility in the specific wrds that are used in auditr s reprts, as natinal law, regulatin r auditing standards may prescribe specific auditr reprting wrding in light f natinal ethical and independence requirements (see Agenda Item K.2). Similarly, while the identificatin f the engagement partner(s) wuld be required fr all entities, a revised ISA 700 wuld be flexible t accmmdate circumstances in which the engagement partner may be required t sign the auditr s reprt. Other Reprting Respnsibilities 23. As discussed at paragraph 9 abve, under the extant ISA 700 the auditr may reprt n ther matters that are supplementary t the auditr s respnsibility under the ISAs t reprt n the financial statements. Thse additinal respnsibilities, referred t as ORRs, are addressed in a separate sectin f the auditr s reprt in rder t clearly distinguish them frm the auditr s respnsibility under the ISAs t reprt n the financial statements. 14 Fr example, the auditr may be asked t: Reprt n certain matters that have cme t the auditr s attentin during the curse f the audit f the financial statements; r Perfrm and reprt n additinal specified prcedures, r t express an pinin n specific matters, such as the adequacy f accunting bks and recrds (r internal cntrl ver financial reprting). 24. As is the case under the extant ISA 700, the auditing standards in the specific jurisdictin wuld prvide guidance n the auditr s respnsibilities with respect t specific additinal reprting respnsibilities in that jurisdictin. The Task Frce prpses retaining in principle the cncept f an ORR sectin within a revised ISA 700 as a key feature f the building blcks apprach. Hwever, it is envisined that sme matters that are currently reprted as part f the ORR sectin f the extant ISA 700 auditr s reprt (fr example, natinal reprting requirements in relatin t ther infrmatin) might have different placement in a revised glbal auditr s reprt. T the extent that such matters relate t revised ISA 700 cre and cnditinal reprting requirement(s) as illustrated in Appendix 1, such matters may be better placed tgether with the ther infrmatin t be prvided as a result f the revised ISA 700 cre r cnditinal requirements rather than in the separate ORR sectin. IV. Matter fr the Task Frce s Further Cnsideratin 25. The Task Frce determined that further utreach and dialgue wuld be required with varius stakehlders t further refine and test the usefulness and feasibility f the building blcks apprach, fr example with: 14 See ISA 700, paragraphs 38, 39, and A34-A36. Page 7 f 15
Users f audited financial statements including investrs, regulatrs and TCWG T explre the usefulness f infrmatin that will be prvided with under the building blcks framewrk. Regulatrs and plicymakers T explre the feasibility f the building blcks apprach in light f lcal laws and regulatins within specific jurisdictins. NSS T evaluate circumstances when additinal guidance wuld be helpful, particularly as it relates t cnditinal reprting requirements and ther reprting respnsibilities. Auditrs and IFAC member bdies T determine that there is a cmmn understanding f what is meant by the term building blcks apprach and identify any practical challenges, including thse that relate t increase levels f auditr effrt and verall audit cst. Users f SME audited financial statements T further understand their auditr reprting needs. Users f PIE audited financial statements T determine whether any f the prpsed cnditinal auditr reprting requirements that are mandated fr listed entities shuld be mandated fr PIEs. It will be necessary t have utreach and dialgue in cnjunctin with the preparatin f the June 2012 CP as well as after its issuance. Fr example, discussins with the IAASB CAG at its March 2012 and the NSS at its April 2012 meeting will cntribute t refining the building blcks cncept, thugh it is nt anticipated that all issues raised will be addressed befre finalizing the June 2012 CP. Page 8 f 15
Appendix 1 Master Checklist f Auditr Reprting Requirements This master checklist illustrates the Task Frce s recmmendatins as t the prescribed reprting requirements f a revised ISA 700 auditr s reprt and hw they shuld be mandated and psitined under the building blcks apprach. Clr Legend Minimum Auditr Reprting Requirements r ORR that current exist under the extant ISA 700 framewrk [Bld] [Underlined] New Minimum Auditr Reprting Requirements New Cnditinal Auditr Reprting Requirements Auditr Reprting Element Mandated fr Audits f all Entities Cnditinal Auditr Reprting Requirements 1 IAASB - Mandated fr Listed Entities NSS t Mandate Specific Wrding and Placement based n principles in ISA 700 Other Reprting Respnsibilities (ORR)- Required by Natinal Law r Regulatin in Specific Jurisdictins 1 Title 2 2 Addressee 3 3 Descriptin f management s respnsibility 4 An intrductry paragraph that identifies the financial statements audited 5 Auditr s Opinin 6 Ging Cncern 4 [TBD] [TBD] 7 Auditr Cmmentary/Insights 8 Other Infrmatin 9 Descriptin f auditr s respnsibility 10 Reference t ISAs/ law/ regulatin 11 Descriptin f an audit in accrdance with ISAs/ law/ regulatin 5 12 Statement abut cmpliance with ethical requirements, including Independence 6 Page 9 f 15
Auditr Reprting Element Mandated fr Audits f all Entities Cnditinal Auditr Reprting Requirements 1 IAASB - Mandated fr Listed Entities NSS t Mandate Specific Wrding and Placement based n principles in ISA 700 Other Reprting Respnsibilities (ORR)- Required by Natinal Law r Regulatin in Specific Jurisdictins 13 Other Reprting Respnsibilities, by law r regulatin at the natinal level 7 14 Identificatin f Engagement Partner (s) 15 Identificatin f engagement team members 16 Identificatin f ther firms wh participated in the audit 17 The auditr s signature 8 18 Date f auditr s reprt 19 Auditr s address Ntes: 1 Factrs such as lcal laws and regulatins that specify the cntent and language f auditr s reprts (fr example, Article 22 f the recent EC prpsals) and the nature f the entity (i.e., whether the entity is a SME r whether it is a PIE) may influence the wrding and level f detail f the infrmatin prvided in the auditr s reprt. Accrdingly, the Task Frce is f the view that the NSS f the lcal jurisdictin will determine the specific wrding and placement f additinal infrmatin in the auditr s reprt that is deemed necessary in light f the IAASB mandated cre r cnditinal requirements. 2 ISA 700, paragraph A15 ntes that a title indicating the reprt is the reprt f an independent auditr, fr example, Independent Auditr s Reprt, affirms that the reprt has met all f the ethical requirements regarding independence and, therefre, distinguishes the independent auditr s reprt frm reprts issued by thers. 3 ISA 700, paragraph A16 ntes that law r regulatin ften specifies t whm the auditr s reprt is t be addressed in that particular jurisdictin. The auditr s reprt is nrmally addressed t thse fr whm the reprt is prepared, ften either t the sharehlders r thse charged with gvernance f the entity whse financial statements are being audited. 4 Agenda Item K.1 explains that, depending n the ptin pursued, reprting n may apply t all entities r listed entities nly. 5 The descriptin under extant ISA 700 will be replaced by ther language recmmended by the Clarificatins Subcmmittee. See Agenda Item M.1. 6 This wuld be achieved by aligning the requirement f ISA 700, paragraph 30, t ISA 700, paragraph 43. Thugh the illustrative example in ISA 700 includes such a statement, its prvisin is nt a minimum requirement in paragraph 43 f ISA 700 t refer t ISAs in the auditr s pinin. 7 Fr example, reprt n effectiveness f internal cntrl ver financial reprting, reprts f thse charged with gvernance, remuneratin reprt, and thers, as apprpriate 8 The auditr s signature is either in the name f the audit firm, the persnal name f the auditr r bth, as apprpriate fr the particular jurisdictin. In additin t the auditr s signature, in certain jurisdictins, the auditr may be required t declare in the auditr s reprt the auditr s prfessinal accuntancy designatin r the fact that the auditr r firm, as apprpriate, has been recgnized by the apprpriate licensing authrity in that jurisdictin. Page 10 f 15
Appendix 2 Minimum Auditr Reprting Elements under Extant ISA 700 1. ISA 700 15 ntes that, if the auditr is required by law r regulatin f a specific jurisdictin t use a specific layut r wrding f the auditr s reprt, the auditr s reprt shall refer t ISAs nly if the auditr s reprt includes, at a minimum, each f the fllwing elements: (a) (b) (c) (d) (e) A title; An addressee, as required by the circumstances f the engagement; An intrductry paragraph that identifies the financial statements audited; A descriptin f the respnsibility f management fr the preparatin f the financial statements; A descriptin f the auditr s respnsibility t express an pinin n the financial statements and the scpe f the audit, that includes: A reference t Internatinal Standards n Auditing and the law r regulatin; and A descriptin f an audit in accrdance with thse standards; (f) (g) (h) (i) An pinin paragraph cntaining an expressin f pinin n the financial statements and a reference t the applicable financial reprting framewrk used t prepare the financial statements (including identifying the jurisdictin f rigin f the financial reprting framewrk that is nt Internatinal Financial Reprting Standards r Internatinal Public Sectr Accunting Standards); The auditr s signature; The date f the auditr s reprt; and The auditr s address. 2. Based n its cnsideratin f the abve minimum auditr reprting elements under extant ISA 700, the Task Frce determined that all shuld frm part f the cre reprting requirements f a new ISA auditr s reprt. 15 ISA 700, paragraph 43 Page 11 f 15
Appendix 3 Additinal Reprting Respnsibilities under Extant ISA 700 1. In rder fr auditrs t cmply with ISA 700, there are additinal mandatry reprting respnsibilities. 16 Ntwithstanding the specific illustrative language and recmmendatin f the Insights, Ging Cncern/Other Infrmatin and Clarificatins Subcmmittees, the Task Frce, based n the recmmendatin f the Building Blcks Sub-cmmittee, cnsidered whether there is merit in explicitly describing thse additinal reprting respnsibilities in the auditr s reprt. Fr example, the task frce cnsidered whether cre reprting requirements culd include statements that further address/explain: (a) (b) (c) (d) (e) Whether sufficient apprpriate audit evidence has been btained t supprt the auditr s pinin. Whether uncrrected misstatements are material, individually r in aggregate. The auditr s evaluatin f whether the financial statements are prepared in accrdance with the requirements f the applicable financial reprting framewrk. Hw the auditr cnsidered, and cncluded n the qualitative aspects f the entity s accunting practices, including indicatrs f pssible bias in management s judgment. Whether in view f the applicable financial reprting framewrk the auditr determines that the: Financial statements adequately disclse the significant accunting plicies selected and applied. Accunting plicies selected and applied are cnsistent with the applicable financial reprting framewrk and are apprpriate. Accunting estimates made by management are reasnable. Infrmatin presented in the financial statements is relevant, reliable, cmparable and understandable. Financial statements prvide adequate disclsures t enable the intended users t understand the effect f material transactins and events n the infrmatin cnveyed in the financial statements. The terminlgy used in the financial statements including the title f each financial statement is apprpriate. (f) When the financial statements are prepared in accrdance with fair presentatin, hw the auditr cnsidered and cncluded abut: The verall presentatin, structure and cntent f the financial statements; and Whether the financial statements, including the related ntes represent the underlying transactins and events in a manner that achieves fair presentatin. 16 ISA 700, paragraphs 11 14 and 30 Page 12 f 15
(g) That the auditr cmplied with ethical requirements (including relevant independence requirements) as part f the ISA audit. 2. Based n cnsideratin f the afrementined additinal reprting respnsibilities, the Task Frce determined that: A statement abut the auditr s cmpliance with ethical requirements, including independence, shuld be included as a cre reprting requirement f a revised reprt. Statements abut hw the auditr cnsidered and cncluded abut the qualitative aspects f the entity s accunting practices, including indicatrs f pssible bias in management s judgment, wuld be subsumed as part f the recmmendatins f the Insights Subcmmittee and thus evaluated as such. Page 13 f 15
Appendix 4 Current Differences in Auditr s Reprts 1. Infrmed by the Building Blck s Subcmmittee s review f illustrative auditr s reprts the Task Frce nted that: A statement abut independence and/r cmpliance with ethical requirements may be drawn frm what is currently being said in the auditr s reprts in Australia, Japan and Iceland. Excerpt frm Australia s auditr s reprt [Auditr Respnsibility] Independence In cnducting ur audit we have cmplied with (per ABC annual reprt fr 2011) the Independence requirements f the Crpratins Act 2001. We have given t the Directrs f the cmpany a written Auditr s Independence Declaratin, a cpy f which is included in the Reprt f the Directrs. In additin t ur audit f the financial reprt, we were engaged t undertake the services disclsed in the ntes t the financial statements. The prvisin f these services has nt impaired ur independence. [Auditr s Opinin] Excerpt frm Iceland s auditr s reprt [Auditr s Respnsibility and Basis f Opinin] Our respnsibility is t express an pinin..in accrdance with XYZ standards n auditing. Thse standards require that we cmply with ethical requirements and plan and perfrm the audit t btain reasnable assurance. [Opinin] Excerpt frm Japan s auditr s reprt In ur pinin the cnslidated financial statements.in cnfrmity with [Additinal Infrmatin] [Audit f ICFR] In ur pinin, management s reprt n ICFR.in cnfrmity with Our firm and the engagement partner d nt have any financial interest in the Cmpany fr which disclsure is required under the prvisins f the Certified Public Accuntants Law. A statement abut newly adpted r changed accunting plicies and practices, akin t what was included in the Japanese illustrative reprt culd be explred. Page 14 f 15
Excerpt frm Japan s auditr s reprt In ur pinin the cnslidated financial statements.in cnfrmity with [Additinal Infrmatin] As discussed in Nte X, Summary f Accunting Plicies, the cnslidated financial statements referred t abve have been prepared in accrdance with certain updates t Accunting Standards Cdificatin Tpic 810, Cnslidatin, which were newly adpted fr this fiscal year. [Audit f ICFR] Matters that are required t be cmmunicated in the auditr s reprt because f law r regulatin in specific jurisdictins r auditing standards f lcal NSS are being/ can be accmmdated by the extant ORR sectin f auditr s reprts. Thse matters include: Reprting n internal cntrl ver financial reprting in Japan and US auditr s reprts Describing the summary f wrk perfrmed n statements f segmentatin f business and the accunting infrmatin including n the balance sheet supplement t the financial statements in Brazil s auditr s reprt Prviding assurance n Directr s declaratin in Australia s auditr s reprt Statement abut financial interest in Japan s auditr s reprt Annexure as required by Indian auditing standards and Indian lcal laws Justificatin f Assessments as required in auditr s reprts as required by French Law Engagement partner signature as required by Australian auditing standards and Sectin 324AB(3) f the Crpratins Act in Australia, UK and Pakistan. Page 15 f 15