The International Auditing and Assurance Standards Board has released newly revised standards for overhauling auditor reports, with the goal of enhancing the auditor’s report for investors and other financial statement users.

The IAASB, which operates under the auspices of the International Federation of Accountants, has been pursuing the effort in recent years on an international basis. The Public Company Accounting Oversight Board has a separate initiative underway on a standard for improving the auditor’s reporting model for U.S. auditing firms, but it has not yet been finalized.

“These changes will reinvigorate the audit, as auditors substantively change their behavior and how they communicate about their work,” said IAASB chairman Prof. Arnold Schilder in a statement. “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 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 introduction of Key Audit Matters for listed entities is a significant enhancement that will change not only the auditor's report, but more broadly the quality of financial reporting—and therefore the informative value to investors and other key stakeholders," said IAASB Consultative Advisory Group chair Linda de Beer. “The IAASB CAG, with its diverse membership base, has unanimously supported and encouraged the IAASB’s formidable leadership in effecting these changes.”

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. Information about the enhancements to auditor reporting and the ISAs that are affected can be found in an Auditor Reporting Fact Sheet.

“The IAASB has responded to calls from investors and others that it is in the public interest for an auditor to provide greater transparency about the audit that was performed,” added Dan Montgomery, former IAASB deputy chair and chair of the Auditor Reporting project. “Increasing the communicative value of the auditor’s report is critical to the perceived value of the financial statement audit.”

The new and revised Auditor Reporting standards will be effective for audits of financial statements for periods ending on or after Dec. 15, 2016.

“While culminating an intense effort over the past six years, the release of the final standards is by no means the end of the IAASB’s work on the topic of auditor reporting,” said IAASB technical director Kathleen Healy. “It is essential that the board and staff continue to promote awareness of these standards and facilitate their effective implementation.”

With this in mind, the auditor reporting section of the IAASB’s website has been redesigned and updated, introducing the first components of an “Auditor Reporting Toolkit.” Additional resources will be released in the future, and the IAASB is encouraging users to visit the website frequently to stay abreast of the latest guidance and resource materials.

The IAASB also plans to undertake a post-implementation review to assess whether the standards are achieving their intended effects and whether further changes to auditor reporting are needed in the public interest.

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