Auditor reports have changed forever with the introduction of these new and revised standards of the International Auditing and Assurance Standards Board (IAASB), which have been adopted by the Independent Regulatory Board for Auditors for use by registered auditors in South Africa.
“The auditor's report is more informative and transparent about the audit that has been performed. It enables a better understanding by the users of financial statements of the auditor's responsibilities, work effort and the outputs of the audit process as well as an enhanced perspective about the audited financial statements. The relevance and value of the external audit are enhanced by adding to users' confidence in the entity's financial reporting as well as the audit,” says Willie Botha, senior executive: assurance and practice at Saica.
Although the new requirements were only effective for financial periods ending on or after 15 December 2016, auditors had the option to early adopt the standards, and some have done so.
“Saica has prepared a report on the early adopters in South Africa, with a focus on entities listed on the Johannesburg Stock Exchange (JSE). The report includes an overview and analysis of the presentation and contents of the auditor reports that were issued, in the context of the key changes as required in accordance with the new and revised auditor reporting and related auditing standards,” he added.
Key audit matter
There were four early adopter audit firms in South Africa which issued auditor reports in relation to nine listed entities. The most prominent change with respect to increased transparency about the audit and enhancing the information value of the auditor’s report is the communication of key audit matter (Kam); those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. A total of 30 Kam was communicated in the early adopter auditor reports concerned.
When investors and analysts (and other users of financial statements) are provided with more entity-specific and audit-specific information, it would provide a better context for understanding the overall message of the audited financial statements and the auditor’s report. The subject of the Kam reported varied and were specific to each entity. Common Kam related to the valuation/impairment of goodwill and intangible assets, the valuation of property plant and equipment, and deferred taxation and income tax.
“The early adopters have led the way and based on the analysis of their reports, the objectives of the IAASB in undertaking this project are well on their way to being achieved. The IAASB is planning a post-implementation review of the standards two years after the effective date (commencing in early 2019) and SAICA will continue to monitor and provide feedback regarding implementation in South Africa,” concluded Botha.