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State Board Report

November 2014

Just as the Public Company Accounting Oversight Board has been considering changes to the auditor’s report (see SBR 9/13), the International Accounting and Auditing Standards Board has been focusing on making the report more informative. Dan Montgomery, IAASB Deputy Chair, told the Annual Meeting audience that while there have been various refinements over the years, the new ISA auditor’s report is probably the most significant change that has taken place in many years. There will be a significant change in practice globally, as “for the first time auditors will have to provide some details about key aspects of the audit,” Mr. Montgomery stated. A similar requirement is already in place in the United Kingdom, will soon be required in the Netherlands, and is to be part of the audit reform in the EU to start in 2016. He said the auditor reporting project will continue to be an important item on the PCAOB’s agenda.

The new ISA auditor’s report is different from the present format, according to Mr. Montgomery, in several ways:

1. It places the auditor’s opinion first in the report.
2. A “key audit matters” (KAM) section is required for public companies.
3. There is more focus on going concern.
4. Ultimately there will be a new section to address “Other Information,” when such information is presented with the audited financial statements (this is a separate project of the IESBA).
5. Other suggested improvements to enhance transparency or clarify responsibilities are included, such as: statement about independence and other ethical responsibilities; naming of the engagement partner for public companies; and an improved description of the auditor’s responsibilities and the key features of the audit.

“Change in the auditing reporting model has been on the horizon for a number of years — and now it is here,” Mr. Montgomery said. “Change will be difficult, but not insurmountable.”

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