April 2019

KEY AUDIT MATTERS IN THE AUDITOR’S REPORT

Khurshed Pastakia
Chartered Accountant

It is always dissatisfaction with the status quo that drives change, and the quantum of change is often proportionate to the magnitude of dissatisfaction. So it was with the auditor’s report that auditors the world over had been issuing with consistency. When the powerful investor-lender lobby, who are the prime stakeholders in corporate enterprises, and therefore the most crucial users of auditor’s reports, said that “the auditor’s opinion on the financial statements is valued, but that the report could be more informative”, they were making a polite understatement. In reality, they were pretty upset about the fact that auditors were not telling them very much about the most important matters they dealt with during the audit, how they responded to them, and how they had concluded on them in forming their opinion. They were unhappy that the entire process of audit was rather opaque and mysterious and sought greater transparency. Their dissatisfaction got exacerbated each time one more large corporation went under and they lost money. 

 

Standard setters across the world were under acute pressure from this powerful lobby, supported by regulators, to change the situation. That was the genesis of the effort to revise reporting standards by the two leading standard setters in the world: the IAASB1 and the PCAOB. In the meanwhile, an initiative for change was taken independently by the UK as early as in 2012-13 followed closely by the Netherlands, both countries bringing out revised reporting standards by 2014. When the IAASB announced 2016 as the effective date for its revised ISAs, there were several countries that early-adopted them, including Germany, Switzerland, Hong Kong, South Africa, New Zealand and Poland. In fact, Zimbabwe conducted a “dry run” of the revised reporting standards a full year ahead of the IAASB effective date. The PCAOB in the US started its effort even earlier, in 2008. The new proposed standard was exposed for outreach of various stakeholders several times, comments were invited and examined, roundtables were held and finally, in 2016, a reproposed standard was announced with staggered effective dates2. India framed its revised reporting standards, based almost wholly on ISAs, with 2017 as the effective date. But that date was later revised to accounting periods beginning 1st April, 2018.

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