ASSURANCE ALERT: NEW PROPOSALS FOR AUDITOR

REPORTING
An exposure draft (ED) titled Reporting on Audited Financial Statements, which contains proposed
new and revised International Standards on Auditing (ISAs), has recently been issued by the
International Auditing and Assurance Standards Board (IAASB).
A significant new auditing standard has been proposed: ISA 701 Communicating Key Audit Matters
in the Independent Auditors Report. It is anticipated that ISA 701 will apply to listed entities
only.
The IAASB is of the view that changes in auditor reporting may have positive benefits on audit
quality, or users perceptions of it, as the auditors report is the key deliverable that addresses
the output of the audit process for users of the audited financial statements. The IAASB hope that
a renewed focus on the matters to be reported will indirectly result in an increase in the auditors
professional scepticism, and will result in a more robust dialogue with those charged with
governance. These results should have a positive impact on audit quality.
The aim of the proposed ISA 701 is to establish requirements and guidance for the auditors
determination and communication of key audit matters. Key audit matters are defined as those
matters that, in the auditors professional judgement, are of the most significance in the current
periods audit of the financial statements. The focus will be on areas of significant auditor
attention, including:

Areas identified as significant risk or involving significant auditor judgement;

Areas in which the auditor encountered significant difficulty during the audit, including with respect
to obtaining sufficient appropriate audit evidence; and
Circumstances that required significant modification of the auditors planned approach to the audit,
including as a result of the identification of a significant deficiency in internal control.

A separate section will also be required to specifically address the existence of a material
uncertainty relating to going concern, including the auditors conclusion on the appropriateness of
managements use of the going concern basis of accounting in the preparation of the financial
statements.
The above will all be based on the auditors professional judgement.
What does this mean for New Zealand entities?
It should be recognised that there is a large amount of weight behind this standard internationally
and it appears that it is a fait accompli for listed entities with a proposed post implementation
review to determine whether broader applicability to other entities is appropriate in the future.
However, it will ultimately be up to the New Zealand Auditing and Assurance Standards Board
(NZAuASB) to decide which entities the changes to the auditor reporting model will apply to here
in New Zealand. (It is highly likely that the NZAuASB will follow international requirements and
require, at a minimum, ISA 701 to be applied to listed entities audit reports).
Information included in the proposed audit report will be significantly more comprehensive and it
will include entity specific risks and potential confidential information will now be made
publically available in the audit report.
It is highly recommended that all entities that are required to be audited (especially listed
entities) keep up to date with the proposed changes, so that there are no big shocks when the
standards come into effect.

https://www.bdo.co.nz/resources/latest-news/assurance_alert/new_proposals_for_auditor_reporting