Meeting Highlights and Podcast

Participating Panelists in order of presentation:

Jay Hanson—PCAOB Member

Dan Montgomery—IAASB Deputy Chair           

Joel Osnoss—Global IFRS Leader, Deloitte

Steven Buller—BlackRock

Introduction

Good afternoon everyone. I appreciate the opportunity to be with you today. As panelist Jay Hanson from the PCAOB mentioned in his remarks before me, there are many interesting ongoing developments affecting the auditing profession, and I think most of us would agree, in light of the global financial crisis, there is even more of a role for auditors to play in helping restore the confidence of analysts, investors and others in financial reporting and increasing the relevance of the financial statement audit.

As an independent standard-setting board, the IAASB does not represent the auditing profession, but rather seeks to establish requirements for the profession that respond to the public interest. And we do this on an international basis, recognizing that analysts and other users operate in a global environment and need confidence that audits, wherever they are undertaken, are to the same high standards and auditor communications are able to be compared and understood across borders.

In today’s environment, the audited financial statements are certainly important and a central focus of the information set available to users. But the spectrum of financial communications includes more than the financial statements: there is much information that is issued along with, but not a part of, the financial statements that users look to for insight into a company.

At the same time, the increasing complexity of business and financial reporting has increased the volume of financial statement disclosures and other information, which has led to calls for change in the way that information is presented and disclosed.  It also has led to calls for change in the way auditors communicate with users about the audit as well as auditor involvement with other types of information.

So the questions are: how are auditors involved with important information being communicated by entities to users? And how can and should they be more involved, and more relevant in their work? With that backdrop, I will highlight a number of IAASB initiatives aimed at strengthening the auditor’s role in relation to different types of information communicated to users of financial statements.

Auditor Reporting

Let me start with the auditor’s report and IAASB’s number one priority project to explore how to enhance its communicative value. While users certainly support the current “pass/fail” audit opinion, many believe there is scope for expanding what auditors say about the audit that was performed. Auditors are “the on-the-ground eyes and ears” acting on behalf of investors and other stakeholders; they understand the areas of the financial statements that pose the greatest risk for misstatements, as well as the areas that are most subjective and judgmental; and they bring to bear their expertise and professional judgments in formulating their opinions. So, many are asking auditors to give more insights about their work.

The IAASB has now done two public consultations on the subject of auditor reporting and the message is quite clear – users, especially investors, want to understand more about what auditors do, where auditors spend their time, and the areas where the most challenging discussions with management or with the audit committee took place. Some users have said that this would help them get better insight into the quality of the individual audit that was performed.

The main improvement to auditor reporting that the IAASB is exploring is a new section of the auditor’s report that we have referred to as Auditor Commentary. In our June 2012 consultation, we explored an objective for Auditor Commentary focusing on matters that, in the auditor’s judgment, are likely to be most important to users’ understanding of the financial statements and the audit and provided some examples of how the concept could be operationalized.

Respondents to our consultation supported the concept of the Auditor Commentary at a high level, and investors in particular favored increased transparency about what “kept the auditor up at night” and believed the role of the auditor was to flag the most challenging matters relating to the audit as a prompt for stakeholders to further engage directly with management and the audit committee on these matters. Investors and preparers and others, however, expressed concerns about the auditor being seen as providing original information about the entity. Preparers in particular felt it was their role to explain the most important matters in the financial statements to users and cautioned against the possibility of blurring lines of responsibilities. 

We are currently exploring a focus on key audit areas and significant auditor judgments as a useful way forward, and we will continue to debate how this could best be done, with plans to approve an exposure draft in June 2013.

The IAASB also is exploring auditor reporting on Going Concern. The global financial crisis has led to some criticism that earlier warning signals about going concern are needed. Our initial proposals were derived from the auditor’s current work effort in relation to going concern in an ISA audit. But respondents to our consultation were concerned about the risk that auditor reporting on going concern could be misinterpreted by users, thereby increasing the expectations gap. They also highlighted that going concern is first and foremost a financial reporting concept, and that a more holistic approach to change involving both accounting and auditing standard setters might be the most appropriate response to the calls for change.  The IAASB has been encouraged to work collaboratively with the IASB and FASB in finding the best way forward in this area.

One final point on auditor reporting. The IAASB recognizes the importance of alignment, to the extent practicable, with others currently addressing auditor reporting, including the PCAOB, the European Commission, and the UK Financial Reporting Council. For this reason, we see coordination and collaboration as an essential part of our work.

Disclosures - Within and Outside the Financial Statements

Let me now turn to the topic of disclosures. Although the auditor’s opinion is on the financial statements as a whole, there are many important disclosures in today’s financial reports: many quantitative, but increasingly qualitative or narrative-based and more judgmental in nature. The natural questions that arise include whether all disclosures are being audited in the same way, and should they be? Is materiality the same for all the different types of disclosures? And should auditors help ensure that disclosures focus on the right information in the right amount of detail; if so, how?

The IAASB of course has a role to play in seeking answers to these and other important questions, and in September 2012 approved commencement of a new project addressing the audit implications of disclosures. As part of this initiative we will actively liaise with the IASB, FASB and others.

As you all know, there also is much important information presented in financial reports outside the basic financial statements,” such as MD&A. In September 2012 the IAASB approved for exposure a proposed revised standard addressing the auditor’s responsibilities relating to this “other information.” Auditors currently have a responsibility to read this information to identify any material inconsistencies with the audited financial statements. We propose enhancing this responsibility as there is much that the auditor can bring to bear in light of the auditor’s understanding of the entity and its environment acquired during an audit. The comment period on this exposure draft runs through to March 14, 2013.

All of the above is part of finding answers to the key question: “How can auditors and others in the financial reporting process assist in improving the quality and understandability of disclosures?”

Broader and Forward Thinking

Let me turn finally to other types of relevant information for users of financial statements.

Analysts and investors often cite a company’s earnings release, or preliminary announcements, as the key financial information used in decision-making. While some countries have requirements for auditor association with this information, there are currently no global requirements for auditors relating to earnings releases. The IAASB intends to leverage our experiences with our other information project, and undertake research to begin to explore what may be feasible in relation to possible requirements for auditors on earnings releases. We plan to commence this in 2014.

Also on the horizon is the concept of “integrated reporting,” which is being spearheaded by the IIRC (International Integrated Reporting Council). This topic is getting much attention and gaining momentum globally, as investors and others believe that corporate reporting should be more focused in more holistic explaining the entity’s value creation over time.

Moving to integrated reporting will no doubt have implications for companies but also for auditors, not only in relation to assurance on the financial statements included in an integrated report, but also in terms of the possibility of assurance on the entire integrated report. For this reason, the IAASB has formed a working group to track ongoing developments related to integrated reporting to ensure the IAASB is well-positioned to develop an appropriate response, perhaps in the form of standards, when the time comes.

This working group also will lead our forward thinking on other important areas such as XBRL and corporate governance reporting, where developments are happening quickly, and we remain committed to identifying early on where the IAASB’s future priorities need to be.

Closing

These are exciting and challenging times. It is now more important than ever for groups like IAASB, PCAOB, IASB, and FASB to work collaboratively. In addition, analysts, investors and preparers have to be engaged and outspoken about needs and concerns to help influence future direction, and all must work together to find common, meaningful and workable solutions to current and emerging issues.

Finally, I’d like to acknowledge the work of the CFA Institute and its support of the IAASB, as well as the importance of individual analyst feedback into the work of IAASB, which is very much appreciated.

Thank you for the opportunity to be here today.

The International Auditing and Assurance Standards Board (IAASB) today released for public comment a new Consultation Paper addressing audit quality. A Framework for Audit Quality seeks input from stakeholders internationally who have an interest in continually enhancing audit quality, including regulators, audit committees, investors, and audit firms.

Through the proposed framework, the IAASB aims to raise awareness of the key elements of audit quality, encourage stakeholders to explore ways to improve audit quality, and facilitate greater dialogue between key stakeholders on the topic.

“While the IAASB recognizes that high-quality auditing standards and well-qualified, competent, skeptical auditors are essential to a quality audit, there are many factors that contribute to maximizing the likelihood of quality audits being consistently performed,” said Prof. Arnold Schilder, IAASB chairman. “There is value in identifying and describing these factors and, thereby, encouraging audit firms and other stakeholders to challenge themselves to think about whether there is more they can do to increase audit quality in their particular environments.”

The IAASB is seeking responses to several questions listed in the Consultation Paper, in particular, whether the framework is clear, comprehensive, and useful. In developing the framework, the IAASB has also identified, with the input of stakeholders, a number of areas for consideration by both auditors and other participants in the financial reporting supply chain that may benefit audit quality on a global basis.

“The proposed framework describes the input and output factors that contribute to audit quality at the engagement, audit firm, and national levels. It also demonstrates the importance of appropriate interactions among stakeholders and the relevance of various contextual factors,” explained James Gunn, IAASB technical director. “We hope that A Framework for Audit Quality will generate discussion and that its active use by various stakeholders will result in positive actions in the public interest to achieve a continual improvement to audit quality.”

How to Comment
The IAASB invites all stakeholders to comment on the consultation paper. To access the document or submit a comment, visit the IAASB’s website at www.iaasb.org. Comments are requested by May 15, 2013.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC).

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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Compliance Week - Auditors overseas may soon face a new requirement to look past the specific information they are auditing to better understand the facts they are checking and assure it all tells a consistent story about the company's financial condition.

Listen to the podcast below. See the IAASB's December 2012 meeting page for additional materials, including meeting highlights, agenda papers, and full audio recordings. 

Len Jui became a member of the IAASB in January 2017 and was appointed as Deputy Chair in 2021. He was nominated by the Transnational Auditors Committee.

Mr. Jui is the KPMG Asia-Pacific Lead on Public Policy and Regulatory Affairs and a member of the KPMG Global Regulatory Steering Group. 

Mr. Jui previously served as a Technical Advisor on the IAASB and IFAC Board and was an International Organization of Securities Commissions (IOSCO) representative member on the IAASB’s and International Ethics Standards Board for Accountants’ Consultative Advisory Groups.

Prior to joining KPMG, Mr. Jui was an Associate Chief Accountant in the Office of the Chief Accountant at the US Securities and Exchange Commission in Washington, DC, where he focused on international accounting and auditing standards, international audit regulation, and the work of IOSCO on cross-border cooperation.

Mr. Jui is an inaugural Listing Committee member of the Shenzhen Stock Exchange ChiNext Board. He is the first US CPA to serve on the China Stock Exchanges. Mr. Jui is also a current member of CPA Australia Centre of Excellence for External Reporting, and a member of Chartered Global Management Accountant (CGMA) North Asia 100 Think Tank and serves as policy advisor to regulators, standard-setter and profession body in China.

Mr. Jui has a Bachelor of Business Administration in Accounting and a Master of Business Administration in Accounting from the University of Miami (FL). He is a Certified Public Accountant in Florida, and a member of the American Institute of CPAs, CGMA, and a Fellow member of CPA Australia.

Welcome to International Auditing and Assurance Standards Board (IAASB) eNews.

In This Issue: 

1. Focus on Auditor Reporting—Feedback on June 2012 Invitation to Comment
2. IAASB Proposes Standard Enhancing Auditor Responsibilities for Disclosures Beyond the Financial Statements
3. IAASB Staff Q&A Publication Addresses Proportionate Application of ISQC 1
4. Directions in Auditing and Assurance: Challenges and Opportunities
5. Upcoming IAASB Meeting
6. Other Relevant IFAC Initiatives
7. Share IAASB eNews with Your Colleagues

1. Focus on Auditor Reporting—Feedback on June 2012 Invitation to Comment

Auditor reporting continues to be the IAASB’s foremost priority, and significant resources will be dedicated to the topic during 2012–2014. To solicit feedback on its June 2012 Invitation to Comment (ITC): Improving the Auditor’s Report, the IAASB held three well-attended global roundtables in North America, Europe, and Asia Pacific. More than 190 investor, analyst, regulatory and oversight, preparer, academic, those charged with governance, standard-setter, and firm representatives from more than 20 countries participated in the roundtables. Information, including audio recordings, is available on the IAASB’s Auditor Reporting Roundtables page.

To date, more than 160 comment letters have been received on the ITC. The IAASB’s discussion of these comments will commence at its December 2012 meeting, followed by an additional IAASB meeting planned for February 2013 to enable continued rapid progress toward an exposure draft of revised auditor reporting standards in 2013. To access the ITC comments, please visit the IAASB’s ITC web page.

2. IAASB Proposes Standard Enhancing Auditor Responsibilities for Disclosures Beyond the Financial Statements

The IAASB has released for public comment proposed International Standard on Auditing (ISA) 720 (Revised), The Auditor’s Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor’s Report Thereon.

The proposed standard clarifies and enhances the scope and focus of auditor efforts on “other information”—that is, information included in documents containing or accompanying the entity’s audited financial statements. The proposals recognize that significant changes in financial reporting have occurred over the last two decades regarding the information issued in connection with an entity’s financial statements and the manner in which it is shared with users. The proposals extend the scope of the extant standard and the auditor’s responsibilities and include suggested auditor reporting responsibilities.

The deadline for comments is March 14, 2013. To submit a comment, click here.

3. IAASB Staff Q&A Publication Addresses Proportionate Application of ISQC 1

IAASB Staff released a Questions & Answers (Q&A) publication titled Applying ISQC 1 Proportionately with the Nature and Size of a Firm. The publication highlights how the design of International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, enables it to be applied in a proportionate manner.

ISQC 1 applies to firms of all sizes that provide services covered by the IAASB’s international standards, including International Standards on Auditing (ISAs), International Standards on Review Engagements (ISREs), International Standards on Assurance Engagements (ISAEs), and International Standards on Related Services (ISRSs).[k1] 

While ISQC 1 applies to all firms, the Q&As focus on matters that are likely to be of particular relevance to the application of ISQC 1 in the context of smaller firms. Smaller firms, as well as smaller public sector audit organizations, should find the publication helpful in achieving an effective and efficient implementation of ISQC 1.

This initiative follows the 2009 IAASB Staff Q&A publication, Applying ISAs Proportionately with the Size and Complexity of an Entity.

4. Directions in Auditing and Assurance: Challenges and Opportunities

IAASB Chairman Prof. Arnold Schilder recently was a guest speaker at a seminar in Melbourne, Australia, hosted by the Australian Auditing and Assurance Standards Board. His presentation–Directions in Auditing & Assurance: Challenges and Opportunities–focused on the impact of the global environment on the relevance of an audit, and included the response of the IAASB to these challenges. Particular topics included the IAASB’s Invitation to Comment on auditor reporting, the IAASB’s projects on audit quality and disclosures, and alternatives to audits aimed at meeting the needs of small- and medium-sized entities (SMEs).

Other challenges and opportunities to enhance relevance were also discussed, including how to reinforce and support professional skepticism, and how to deal with emerging developments, such as integrated reporting.

5. Upcoming IAASB Meeting

The IAASB will meet in New York, USA, December 10–13, 2012. As a reminder, all meeting agenda materials are publicly available and posted on the IAASB's website in advance of IAASB meetings.

Topics that will be discussed include: auditor reporting, audit quality, disclosures, using the work of internal auditors, and the revision of International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information.

In addition, meeting highlights, a summary podcast, and complete audio recordings are posted after each meeting. Visit the IAASB Meetings page.

6. Other Relevant IFAC Initiatives

Initiatives of IFAC committees and other independent standard-setting boards supported by IFAC may be of interest to those who follow the work of the IAASB, including the following:

International Education Standard (IES) 6, Initial Professional Development – Assessment of Professional Competence (Revised)

Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities: Elements and Recognition in Financial Statements

Responding to a Suspected Illegal Act―IESBA Proposes Changes to Code of Ethics to Address Illegal Acts

PAIB Committee Response to the IAASB Invitation to Comment: Improving the Auditor’s Report

IFAC and the IIRC Sign MoU on Cooperation, Collaboration For IR

7. Share IAASB eNews with Your Colleagues

The IAASB issues regular eNews updates to keep you apprised of the board's activities and recent publications. Please forward this eNews to any interested colleagues and let them know they can register and subscribe to this and other eNews bulletins.

IAASB Chair Prof. Arnold Schilder was a guest speaker at the Public Seminar in Melbourne, Australia, presenting Directions in Auditing & Assurance: Challenges and Opportunities. The presentation focused on the relevance of Clarified International Standards on Auditing (ISAs), the Challenges to the Relevance of Audit, Auditor reporting and the IAASB’s Invitation to Comment (ITC), titled Improving the Auditor’s Report, and the challenges and opportunities in setting international auditing and assurance standards.