In the wake of the present financial crisis, the role of the auditor has been questioned by many stakeholders. One of the concern of the stakeholder was that the auditor's report was not very informative and was not very transparent. It was a requirement for the auditor to share more information about their work, including how the auditor has addressed key risks and other significant aspects of audits. The enhanced auditor's report issued by AASB (Auditing & Assurance Standard Board) of ICAI is applicable for audits of financial statements for the period beginning on or after April 2018.
Change in the reporting structure
Pre-revised Auditor's report as per SA 700 has the following presentation
- Title
- Addressee
- Introductory paragraph
- Management's responsibility
- Auditor's responsibility
- Auditor's opinion
- Other reporting responsibilities
- Date, Place of signature
Revised SA 700 (with effect from 01.04.2018) has to be presented in the following manner
- Title
- Addressee
- Auditor's Opinion
- Basis for Opinion
- Going Concern
- Key Audit Matters (SA 701)
- Management's responsibility
- Auditor's responsibility
- Other reporting responsibilities
- Date, Place of signature
The auditor has to specifically prescribe the 'Basis of Opinion' which was earlier under the 'Auditor's responsibility statement'.
Basis of Opinion shall specifically state that:
a) States that the audit was conducted in accordance with SAs
b) Refers to the section of the auditor's report that describes the auditor's responsibilities under the SAs;
c) Includes a statement that the auditor is independent of the entity in accordance with the relevant ethical requirements relating to the audit, and has fulfilled the auditor's other ethical responsibilities in accordance with these requirements. The statement shall refer to the Code of Ethics issued by ICAI
d) States whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor's opinion.
The Auditor's responsibility has been enhanced further and it shall specifically state that objective of the auditor are to:
(a) Obtain reasonable assurance about whether the financial statement as a whole are free from material misstatement, whether due to fraud or error.
(b) Issue an auditor's report that includes the auditor's opinion.
State that reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement if it exists
State that misstatements can arise from fraud or error, and either
- Describe that they are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users or
- Provide a definition or description of materiality in accordance with the applicable financial reporting framework.
- When SA 600 applies, further describe the auditor's responsibilities in a group audit engagement by stating: 'The division of responsibility for the financial information of the entity by indicating the extent to which the financial information of components is audited by the other auditors have been included in the financial information of the entity, e.g., the number of divisions/branches/subsidiaries or other components audited by other auditors'.
Shall state that the auditor exercises professional judgment and maintains professional skepticism throughout the audit.
The auditor shall describe that the auditor's responsibilities are:
- To identify and assess the risk of material misstatement
- To design and perform audit procedures responsive to those risks
- To obtain audit evidence that is sufficient and appropriate to provide basis for the auditor's opinion.
- To obtain an understanding of internal control relevant to the audit
- To evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- To conclude on the appropriateness of management's use of the going concern basis of accounting.
- To evaluate the overall presentation, structure and content of the financial statements, including the disclosures.
State that the auditor communicates with those charged with governance regarding the planned scope and timing of the audit and significant audit findings, including any significant deficiencies identified in internal control.
State that the auditor provides those charged with governance with a statement that the auditor has complied with relevant ethical requirements
For all such entities for which key audit matters are communicated in accordance with SA 701, state that, from the matters communicated with those charged with governance, the auditor determines those matters that were of most significance in the audit.
Documentation requirement to comply with Revised Auditor's reporting Standard
• KAM reporting / Reporting to TCWG: The auditor is required to maintain adequate documents to report KAM and describe the procedure adopted by auditor to address the KAM. Thus appropriate documents are required to be maintained regarding the audit procedure performed. The KAM are required to be communicated to the TCWG before presenting them in the auditor's report. Thus, the documentation requirement of Revised SA 260 and SA 265 has to be complied.
• Risk assessment: All the matters which is addressed to the TCWG as per Revised SA 260 and SA 265 need not be reported in KAM. The auditor has to analyze the matters which require significant auditor attention. Thus the auditor is required to do a risk assessment procedure and document the same as per the requirement of SA 315.
• Going Concern: The auditor is required to specifically report on the going concern of the entity. Thus the auditor has to document its finding and analysis of the going concern and documentation as per Revised SA 570.
• Materiality: In the auditor's responsibility statement, the auditor is required to provide materiality or description of materiality which required documentation of materiality as per SA 320.
• Communication & documentation of KAM: Using appropriate sub- heading the auditor has to describe each KAM with reference to the related disclosure and explain why the matter was considered to be one of the most significant and how the matter was addressed in the audit. Thus, documentation of the audit procedure in the auditor working paper becomes important.
The auditor is required to disclose a brief overview of audit procedure performed.
The revised standard on the Auditor's reporting has increased the importance of maintenance of proper working papers for the audit conducted to provide high quality information which is the objective for introduction of Revised Auditor's reporting Standard.
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