The Enhanced Auditors’ Report (EAR) has spurred constructive behavioural changes within the financial reporting ecosystem and better engagement between companies and investors in Malaysia.
ACCA worked with the Malaysian Institute of Accountants and The Securities Commission Malaysia to explore the impact of the first generation of the Enhanced Auditors’ Report (EAR) issued in Malaysia, focusing on auditors' communication with audit committees, and on the perceptions and behaviour of investors.
Sparking positive change
Most of the audit committee members (78%) and investors (73%) surveyed agreed that the EAR is an improvement over the old format of the auditors' report.
Audit committee discussions about financial reporting risks with auditors and management are more focused and robust, putting audit committees in a strongerposition to ensure accountability on behalf of investors.
The audit process has been strengthened through more visible audit partner involvement in discussions with audit committees, due to the need for in-depth deliberation and discussion of KAMs in particular.
Management are making efforts to improve disclosures in the annual report, following discussion about KAMs.
The EAR has improved the relevance and value of the auditors' report.
The way forward
The EARs' positive impact in the first year of implementation indicates that continued improvement and engagement between all stakeholders should reap significant benefits in enhanced financial reporting and auditing.
"We have seen a promising start to the implementation of EAR in Malaysia, but more can be done to fully extract the value of this enhanced form of communication."
Overview of key changes
The most significant change in the EAR is that in addition to expressing a binary opinion on whether the financial statements are true and fair, auditors of listed companies must report the Key Audit Matters (KAMs) – the matters that were of most significance in the audit of the financial statements and how the audit addressed those issues.
Other changes include:
- Prominent placement of the auditors' opinion at the beginning of the auditors' report
- A new required separate section to highlight when a material uncertainty related to going concern exists, and clarification on the auditors’ work effort in 'close call' situations
- An affirmative statement about the auditors' independence.