Auditing Standards Board plans to propose expansion of audit report in October

The AICPA’s Auditing Standards Board (ASB) is planning to issue in October 2017 a proposal to expand the auditor’s report as part of its effort to align its standards with the guidance of the International Auditing and Assurance Standards Board (IAASB).

The decision was reached during a Sept. 11 teleconference when the ASB unanimously voted to propose changes to the guidance for auditors when they examine a financial statement’s disclosures.

Because some of the provisions for the disclosure project affect the proposed changes to the audit report standards, the ASB decided to issue one exposure draft that combines the proposed amendments from the two projects, according to Ahava Goldman, senior technical manager for audit and attest standards on public accounting with the Association of International Certified Professional Accountants, a joint venture between the AICPA and the Chartered Institute of Management Accountants.

The ASB agreed to call the Exposure Draft, Proposed Statements on Auditing Standards: Auditor Reporting. If the proposed amendments are finalized, they would be effective no earlier than for audits of financial statements for periods ending on or after June 15, 2019, depending on the timing of adoption.

The September teleconference dealt with proposed alignments with the IAASB’s July 2015 International Standard on Auditing (ISA), Addressing Disclosures in the Audit of Financial Statements–Revised ISAs and Related Conforming Amendments, which made auditors put a greater focus on financial statement disclosures and address the risk of financial misstatements more explicitly.

The changes include a strengthened requirement in ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment; ISA 330, The Auditor’s Responses to Assessed Risks; and ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements.

In July, the ASB discussed the wording differences between various audit standards and ISA requirements and reduced the changes it would seek for its guidance.

“The purpose of the proposed amendments is to focus the attention of auditors on disclosures earlier in the audit process,” Goldman said.

In addition, the ASB voted in July to issue a proposal to improve the contents of the auditor’s report by aligning its guidance with several new and revised standards the IAASB issued in January 2015, including ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report. The standard requires auditors to include in the auditor’s report key audit matters (KAMs), which are the issues the auditor viewed as most significant during the examination of the financial statements and reporting systems.

The ASB has also examined the PCAOB’s rule to expand the auditor’s report to avoid unnecessary differences. The PCAOB issued Release No. 2017-001, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, in June. The rule is awaiting a decision by the SEC, which needs to approve the standard before it becomes effective. The SEC is expected to take action by the end of October.

The rule’s changes include a requirement that auditors describe the critical matters in the auditor’s report, similar to the IAASB’s KAM requirements.

“Although certain changes were made to the proposed SASs [Statement on Auditing Standards] and amendments in view of the PCAOB reporting model, the ASB’s primary focus was on convergence with the ISAs,” according to a draft version of the exposure draft that the AICPA’s ASB is planning to release in October. “It is the ASB’s strategy to converge its standards with those of the IAASB. In doing that, the ASB uses the corresponding ISA as the base in developing its standards.”

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