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Copyright © Chartered Accountants Australia and New Zealand

2015. All rights reserved. 1

LiveOne Future of Audit Reporting

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

Copyright © 2015 Chartered Accountants Australia and New Zealand 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 ZealandCopyright © 2015 Chartered Accountants Australia and New Zealand 3

Copyright © 2015 Chartered Accountants Australia and New Zealand

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





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


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





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


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





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


Key audit matters




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


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





Which matters required significant auditor attention?


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


Which matters were of most significance?


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





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


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





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”





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.


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….





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





“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.


Other changes




Independence

• Affirmative statement of independence and compliance with ethics– Including reporting to those charged with governance

• Relevant source of ethics identified


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





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





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:


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





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?


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

32




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


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





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


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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