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Liz StamfordAudit & Insolvency Leader Chartered Accountants Australia and New ZealandDavid SauerPrincipal, David Sauer Chartered Accountant
Future of audit reporting
Copyright © 2015 Chartered Accountants Australia and New Zealand
Auditor Reporting
“The new auditor reportingstandards are the biggest
change to auditing indecades.
The market is demandingmore information, and
these changes respond tothose demands”
Fayez ChoudhuryCEO, International
Federation of Accountants
“The preparation of thesenew style reports… willresult in more intensecommunication withmanagement and thosecharged withgovernance…. The publicbenefit hopefully will bebetter understanding ofcompanies and theiraudits”
Professor Arnold SchilderChairman, InternationalAuditing and AssuranceStandards Board
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LiveOne Future of Audit Reporting
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
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Where and When?
Applicable to everycountry which adoptsinternational auditing
standards
UK introduced similarrequirements in 2013
PCAOB consulting onUS “KAM” equivalent
standard
International standardapplicable for year endson or after 15 December
2016
Australia and NewZealand same adoptionperiod – 31 December
2016 / 30 June 2017 yearends
Early adoption
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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
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Application – when?
Periods ending on or after 15 December 2016Early adoption of full suite permitted once standards made
Exposure period – comments close:NZ Monday 10 AugustAust ASA 720 Monday 10 August
Others – 30 June 2015
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Application – which audit reports?
International Australia NZ
Key audit mattersListed entities Listed entities Listed issuer *
Others -voluntary
Others – voluntary Others -voluntary
Disclosure ofengagement partnersname
Listed entities Where requiredby law orregulation
All auditorreports
Disclosure – reporting toTCWG of independence
Listed entities All auditorreports
Other features All audit reports All audit reports All audit reports
* See next slide
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NZ: Key audit matters from 31 December 2018
• Equity issuers who make a regulatedoffer (and have more than 50 s/holders)
• Debt issuers who make a regulated offer
• Licensed derivative issuers
• Licensed management investmentscheme (MIS) managers (in respect ofthe financial statements of the MIS theymanage)
• Recipients of money from conduitissuers
• Registered banks
• Licensed insurers
• Credit unions
• Building societies
• Any other entity designated as having ahigher level of public accountability bythe FMA.
FMC reporting entity with higher level of public accountability – years ending on or after 31 Dec 18
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Proposed elements of auditor reports
Opinion
Basis of opinion
Audit Comment on Going Concern Basis of Accounting
• Judged by auditor to be most significant in the audit(why)
• Where located in financial report• Audit approach
• Judged by auditor to be most significant in the audit(why)
• Where located in financial report• Audit approachKey Audit Matters
Emphasis of Matter• Governance responsibility / auditor reads• Nothing to report / Material misstatement• Governance responsibility / auditor reads• Nothing to report / Material misstatementAudit comment on Other information
• Some auditor responsibilities can be in an Appendix• Some auditor responsibilities can be in an AppendixDescriptions of auditor responsibilities
Report on Regulatory / Other Matters
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Key audit matters
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What are Key Audit Matters?
Those matters that,in the auditor’s judgement,
were of most significance in the auditof the current-period financial
statements
Those matters that,in the auditor’s judgement,
were of most significance in the auditof the current-period financial
statements
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What are key audit matters?
Item Mgmt TWCG Significantauditor
attention
Key auditmatter
Opinion
1
2
3
4
5
6
Risk
•Higherassessed riskof materialmisstatement
•Significantrisks identifiedunder ASA 315
Judgement
•Significant forboth auditorandmanagement
•Accountingestimatesidentified ashaving highestimationuncertainty
Events
•Effect on auditof significantevents ortransactionsduring theyear
Starthere
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Which matters required significant auditor attention?
Item Mgmt TWCG Significantauditor
attention
Key auditmatter
Opinion
1
2
3
4
5
6
Always consider
• Areas of higher assessed risk of materialmisstatement or significant risks identified underASA 315
• Significant auditor judgements relating to areas ofsignificant management judgement
• The effect on the audit of significant events ortransactions during the year
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Which matters were of most significance?
Item Mgmt TWCG Significantauditor
attention
Key auditmatter
Opinion
1
2
3
4
5
6
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
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Documentation of professional judgements
Must document:• Why a matter that required
significant auditor attention is or isnot 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 auditorattention
Item Mgmt TCWG Significantauditor
attention
Key auditmatter
Opinion
1
2
3
4
5
6
Don’thave toDon’t
have to
Mustdocument
Mustdocument
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Features of Key audit matters
How was itaddressed in
the audit?
Where are the relateddisclosures?
Why was it oneof the mostsignificantmatters?
For eachKAM:
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 Mattero KAM is not a substitute for opinion
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Going concern
Reporting on going concern
•Respective responsibilities described•GC material uncertainty addressed in separatesection
•Previously was in EOM•Must challenge adequacy of disclosures for“close calls”
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Example: Included with descriptions of responsibilities
As part of an audit in accordance with Australian Auditing Standards, we exerciseprofessional judgement and maintain professional scepticism throughout the audit. Wealso: ….• 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 uncertaintyexists related to events or conditions that may cast significant doubt on the Entity’sability 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 thefinancial report or, if such disclosures are inadequate, to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditor’sreport. However, future events or conditions may cause the Entity to cease to continueas a going concern.
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Example: Going concern uncertainty para
Basis for Opinion……Material Uncertainty Related to Going ConcernWe draw attention to Note 6 in the financial report, which indicates that the Companyincurred a net loss of ZZZ during the year ended 30 June 20X1 and, as of that date, theCompany’s current liabilities exceeded its total assets by YYY. As stated in Note 6, theseevents or conditions, along with other matters as set forth in Note 6, indicate that amaterial uncertainty exists that may cast significant doubt on the Company’s ability tocontinue as a going concern. Our opinion is not modified in respect of this matter.Key Audit Matters….
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Reporting on Other Information
ASA / NZ 720: What the auditor must do
• Read the other information and consider whether there is a material inconsistencybetween:
– 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
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“Other information” section
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
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.
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Other changes
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Independence
• Affirmative statement of independence and compliance with ethics– Including reporting to those charged with governance
• Relevant source of ethics identified
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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
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Implementation Roadmap
Plan your timetable to 2016
June 30 2015 Dec 312015
Jun 302016
Dec 312016
Apply for periods endingon or after 15 Dec 2016Education Trial run
Develop firm’spolicies andresponses
Communicatewith clients
Assessimpacts
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Assess impacts
Added focus on financial statements /preparers role
New material on public record
Quantity / nature of additional work
- Final standards / reviews- Interpretation by firms- Responses of report users- Responses of insurers
Ongoingmonitoring:
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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
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Communicate with clients
Advise / illustrate coming changes
Agree any new timetable
Address audit costs / fees
Highlight client role in financial statementsWhat changes can they make that alter the report contents?
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Opinion
Basis of opinion
Audit Comment on Going Concern Basis of Accounting
Final opportunity forcomments and questions
Final opportunity forcomments and questions
Key Audit Matters
Emphasis of Matter
Audit comment on Other information
Descriptions of auditor responsibilities
Report on Regulatory / Other Matters
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References - CAANZ
Auditor reports ED 01/15 - CAANZ page with links to key documents•http://www.charteredaccountants.com.au/Industry-Topics/Audit-and-assurance/Exposure-drafts-and-submissions/Submissions/Open-for-comment/AUASB-exposure-drafts/Auditor-reporting-on-other-information
Auditor reporting on other information ED 02/15- CAANZ page and links•http://www.charteredaccountants.com.au/Industry-Topics/Audit-and-assurance/Exposure-drafts-and-submissions/Submissions/Open-for-comment/AUASB-exposure-drafts/Auditor-reporting-on-other-information
Discussion Paper - Revolutionising Reporting: Why Care?•http://www.charteredaccountants.com.au/futureinc/Publications
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References – IAASB support material
Auditor reporting toolkit• http://www.iaasb.org/new-auditors-report
Auditor Reporting – Key Audit Matters• http://www.ifac.org/publications-resources/auditor-reporting-key-audit-matters
Auditor Reporting—Illustrative Key Audit Matters• http://www.ifac.org/publications-resources/auditor-reporting-illustrative-key-audit-matters
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References – UK experience
Extended auditor’s reports: A review of experience in the first yearReport by UK Financial Reporting Council, March 2015
• https://www.frc.org.uk/Our-Work/Publications/Audit-and-Assurance-Team/Extended-auditor-s-reports-A-review-of-experience.pdf
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Your presenter today:
David SauerB. Com. FCA
PrincipalDavid Sauer, Chartered Accountant
David offers a sounding board and resource for all matters relating to technical financialreporting, audit, reporting legislation and professional standards. A practising RegisteredCompany Auditor and member of the Companies Auditors and Liquidators DisciplinaryBoard, David uses 30 years of experience in professional services to help you understandwhat you need to do in a changing world.Before establishing his own practice, David worked for eleven years at Deloitte and MooreStephens.You may email queries arising from this presentation to David [email protected]
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Don’t miss upcoming…These LiveOne sessions are also available as OnDemand Recordings
Date Topic21 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-periodExcess Earnings Method
25 August 2015 Essential SMSF Update 20152 September 2015 Corporate Tax Series - Tax consolidation30 September 2015 Harnessing the power of Big Data Series15 October 2015 Harnessing the power of Big Data - Session 2: Big data
influenced strategic modelling15 October 2015 Strategic SMSF sessions – Implications of bankruptcy
and insolvency on SMSFs
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Available until Topic1 September 2015 Advanced Corporate Finance Series30 September 2015 Mastering the Art of Buying or Selling a Practice series8 October 2015 New Manager Series - Management and Leadership
Essentials17 February 2016 Warning Signs for Companies in Distress10 March 2016 Business valuation family law litigation series7 May 2016 Managing Bank Relationship Risk30 June 2016 Managed Fund Essentials30 June 2016 Industry Risk Series – incl. Logistics, Retail, Pubs &
Clubs30 June 2016 Sustainability Series - Session One: Reporting on
sustainability – the ASX Corporate GovernanceGuidelines
LiveOne sessions are also available as OnDemand Recordings
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