The Auditing Practices Board (APB) has today published ISA (UK and Ireland) 700 (Revised) “The Auditor’s Report on Financial Statements” in order to facilitate a more concise auditor’s report.
Background
In 2007 the APB issued a Discussion Paper entitled “The Auditor’s Report: A time for change?” which sought views on what changes needed to be made to UK auditor’s reports to reflect the changes introduced by the Companies Act 2006, and whether more wide ranging changes should be made to the form and content of the auditor’s report.
Institutional investors, preparer organisations, public-sector bodies and some auditing firms and individuals observed that there were opportunities for streamlining the current report especially in relation to the current descriptions of the auditor’s and directors’ responsibilities and with the summarised description of the scope of an audit.
Many of the institutional investors also called for the auditor’s report to be made more informative. Some called for the auditor’s report to provide more of an insight into the quality of the work which the auditor has carried out whilst others suggested much greater use of emphasis of matter paragraphs.
More concise auditor’s reports
Improving the conciseness of the auditor’s report is the first phase of APB’s work to respond to the views of commentators. The new ISA (UK and Ireland) 700 (Revised) facilitates shorter auditor’s reports in a number of ways including allowing cross reference to a “Statement of the Scope of an Audit” maintained on APB’s web-site.
More informative auditor’s reports
The second phase of APB’s work to respond to commentators’ views will be to undertake research to better understand what can realistically be done to make auditor’s reports more informative.
Richard Fleck, Chairman of APB commented:
“The form and content of the auditor’s report is a matter of active consideration internationally. In particular, the European Commission has yet to decide on the form and content of auditor’s reports within the EU and the IAASB has agreed to consider recent research and developments with regard to the auditor’s report. APB continues to believe that there is a “window of opportunity” during which it can influence international decisions on the auditor’s report, especially if its ideas are implemented in practice and found to be beneficial by investors and others.
APB, therefore, will monitor reaction to the changes it has made to ISA (UK and Ireland) 700 and, in particular, the extent to which:
- reference is made to the description of the Scope of an Audit on APB’s web-site; and
- auditor’s decide to provide additional comment in the auditor’s report to highlight matters which they regard as relevant to a proper understanding of their work.”
Focus on UK companies
The catalyst for change was the implementation of the Companies Act 2006 and APB is responding, in part, to the views of institutional investors. It therefore seems appropriate to focus, initially, on UK companies. Consequently APB has established a two stage implementation plan:
- The effective date of Revised ISA (UK and Ireland) 700 for UK companies will be for accounting periods that end on or after 5 April 2009;
- For other UK entities the effective date is for periods ending on or after 15 December 2010 (i.e. the same effective date as will apply to the clarified ISAs (UK and Ireland, see APB Press Notice 103)
Republic of Ireland
With respect to Irish companies and entities APB is monitoring developments in Irish Law which may have an effect on the content or structure of auditor’s reports. APB will make an announcement concerning the applicability of ISA (UK and Ireland) 700 (Revised) in the Republic of Ireland when there is more certainty about the legal position.
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