Enhanced auditor reporting standards to improve transparency and audit insight of financial statements

The enhanced auditor reporting standards were issued by the Institute of Singapore Chartered Accountants (ISCA) on 30 July 2015. These standards, which are based on the new and revised auditor reporting International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB), stems from the IAASB project to enhance auditor communication in response to investors’ call for the auditor’s report to be more informative and relevant.

These standards will change the manner in which auditors communicate their work in the auditor’s report and will inevitably impact other stakeholder groups, including the preparers of the financial statements (CFOs and their finance team), the directors, the investors and the regulators.

The most significant enhancement to the auditor’s report is the new requirement for auditors of financial statements of listed entities to communicate “Key Audit Matters (KAM)” – those matters that the auditors judge to be of most significance in the current period audit, with an explanation of how they were addressed in the audit. There are also enhancements to the auditor’s attention and communication on matters related to going concern in the auditor’s report, applicable to audits of financial statements of all entities.

New and Revised Auditor Reporting Standards

  • Singapore Standard on Auditing (SSA) 700 (Revised), Forming an Opinion and Reporting on Financial Statements
  • New SSA 701, Communicating Key Audit Matters in the Independent Auditor’s Report
  • SSA 260 (Revised), Communication with Those Charged with Governance
  • SSA 570 (Revised), Going Concern
  • SSA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report
  • SSA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter paragraphs in the Independent Auditor’s Report

Conforming Amendments

In addition, conforming amendments have been made to the following SSAs and locally developed pronouncements:

  • SSA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Singapore Standards on Auditing;
  • SSA 210, Agreeing the Terms of Audit Engagements;
  • SSA 220, Quality Control for an Audit of Financial Statements;
  • SSA 230, Audit Documentation;
  • SSA 510, Initial Audit Engagements - Opening Balances;
  • SSA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures;
  • SSA 580, Written Representations;
  • SSA 600, Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors);
  • SSA 710, Comparative Information - Corresponding Figures and Comparative Financial Statements; Statement of Auditing Practice (SAP) 2 (Revised), Auditors and Public Offering Documents;
  • Audit Guidance Statement (AGS) 5, Audits of Entities in Specific Industries, Professions or Vocations; and
  • AGS 10, Joint Audits.

The new and revised auditor reporting standards and the conforming amendments are effective for audits of financial statements for periods ending on or after 15 December 2016. Early adoption is allowed.

Key Enhancements to the Auditor’s Report

Key EnhancementsValue
1Key Audit Matters (KAM)

New section to communicate KAM. KAM are those matters that, in the auditor’s judgment, were of most significance in the audit of the current period financial statements

The requirement to communicate KAM is mandatory for audits of complete sets of general purpose financial statements of listed entities
Provides information of interest to users, enhances the value of the current binary auditor’s opinion and increases the relevance of audit

Insights provided in KAMs enable investors to focus on key audit issues which generally correlate to the significant risk areas of the entity - helps deepen engagement between stakeholders, management, directors and auditors

2Going Concern (GC)

  • Descriptions of the respective responsibilities of management and the auditor for GC are included in the auditor’s report;
  • A separate section under the heading “Material Uncertainty Related to Going Concern” when a material uncertainty exists and is adequately disclosed; and
  • New requirement for the auditor to evaluate the adequacy of disclosures in “close call” situations, when events or conditions are identified that may cast significant doubt on an entity’s ability to continue as a GC but no material uncertainty concluded.
Topic of GC is of significant interest in light of the global financial crisis. In the public interest for increased focus on GC matters by management and auditors
3Statement about the Auditor’s Independence and Fulfilment of Relevant Ethical Responsibilities

Affirmative statement about the auditor’s independence and fulfilment of relevant ethical responsibilities
Emphasises the importance of complying with ethical requirements as a basis for the audit and increases the focus on auditor independence
4Disclosure of Name of Engagement Partner

Disclosure of the name of the engagement partner for audits of financial statements of listed entities, with a “harm’s way” exemption, i.e. disclosure is necessary unless, in rare circumstances, such disclosure is reasonably expected to lead to a significant personal security threat
Increases transparency and provides engagement partner with a greater sense of personal responsibility and accountability, which translates to improved audit quality
5Enhanced Description of the Responsibilities of the Auditor

Description of auditor’s responsibilities for the audit and key features of the audit have been enhanced and expanded
Provides greater transparency of the audit process and provides enhanced understanding of the role of auditor and the nature of audit work
6Ordering of Sections

“Opinion” section required to be presented first, followed by the “Basis for Opinion” section, unless law or regulation prescribe otherwise
Recognises the importance of the auditor’s opinion on the financial statements to users

Source: Institute of Singapore Chartered Accountants

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