The scope of application and the role of national regulators were also discussed. There were some further questions around KAM and their interrelationship with 'emphasis of matter' and the new section on 'going concern', and ordering of key paragraphs. Is it clear what a KAM is? Some asked whether we need more guidance, while some said the more guidance you have, the more constraints there are.
Brendan Murtagh, ACCA member and IAASB board member provided a Small and Medium size Practice (SMPs) angle to the debate, explaining that 'ISA 701 applies to listed entities and provides for possible wider applications, such as voluntary reporting of KAM by non-listed entities. This evolution should be recognised and embraced as an opportunity rather than a burden by SMPs, as it is a clear demonstration of the value of an audit, irrespective of whether an entity is listed or not.'
Marek Grabowski, Director of Audit Policy, FRC, concluded: 'Despite the remaining tensions, we are definitely moving in the right direction. Most key IAASB proposals are expected to have positive benefits on audit quality and users’ perceptions, and will hopefully increase users’ confidence in the audit and financial statements, while renewing the auditor’s focus on matters to be reported. However, there will be no perfect answer, we will have to explore, and accept that to some extent, this is going to be experimental, and will not be based on strong practice in some areas. It is described as a golden opportunity for the profession, a part of that is about taking some risk and giving it a go.'
* The IAASB proposals include:
- Opinion preferably first
- New section to address Key Audit Matters - The proposals aim at clarifying what information should come from which source - for example, information about the entity is more appropriately disclosed by the audit committee and information about the audit is more appropriately disclosed by the auditor. The objectives of the proposals for Key Audit Matters are for the auditors to communicate the matters that, in their professional judgement, were considered of the most significance in the audit of the financial statements; what constitutes a ‘Key Audit Matter’ will be left to the auditor’s professional judgement.
- New section to address Going Concern- since the financial crisis, and the EU proposals on audit reform, there has been a heightened attention on the issue of going concern.
- New section to address Other Information when such information is presented with the audited financial statements
- Other suggested improvements to enhance transparency or clarify responsibilities including Statement about independence and other ethical responsibilities; Naming of the engagement partner (listed entities); Improved description of auditor responsibilities and key features of the audit.