Better bang for every audit buck

The financial crisis proved the significance of the role of auditors but, at the same time, increased the scrutiny and interest that comes with it. Much of the attention has focused on competition and independence, but auditor reporting has been a lightning rod for debate around reform.

As a profession, we have not done a good job of explaining what an audit is, so we can hardly complain if it is not well understood.

What investors want?

Surveys consistently show that investors value the audit and the audit opinion but they also show that current auditor reports do not meet their needs as well as it could. Investors greatly value the auditor's opinion on financial statements, but they would like more informative reporting — greater insight into the entity's financial reporting, as well as assurance on other information or matters not within the scope of today's financial statement audit.

The most common demand by many investors is that auditors should provide greater insight into judgments that the management makes in preparing financial statements, going concern assumption and risks of material misstatement. Insights into above areas can be achieved by various means. For example, disclosures made by the management can be signposted by emphasising matter paragraphs and audit committee reporting can be enhanced.

evolved reporting model

From among the information that companies publish, the audit focuses on reporting at a time on just one element — the financial statements. To better meet the needs of market-based systems, there is a need to reform the overall corporate reporting model.

As corporate reporting evolves, a more comprehensive assurance model can further enhance the relevance and value of information for the capital markets. This may potentially include opinions that cover other aspects of the entity's reporting, such as reporting on non-GAAP financial information, risk, internal controls, governance, and social and environmental impacts.

Key focus areas

Further, most of the investors are under the misapprehension that information published in preliminary statements (example, quarterly results) is always audited. They say that these statements drive the market hence they would like to see a formal statement of assurance being attached to such statements.

Maintain or improve audit quality and enhance the value of audit to users;

increase the reliability of information companies provide in public reports;

maintain or enhance the effectiveness of auditor interactions with those charged with governance (example, audit committees and management);

ensure auditor reporting is sufficiently similar to enable comparisons of the underlying information between different companies; and

provide greater insight on the audit but avoid the auditor being the original source of factual data about the entity.

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