Changes are coming to the language in an auditor’s report, but the extent of modification is not fully decided. This has a significant impact on CPA study material for young accountants because it alters the communications CPAs deliver about their audits. The main area of controversy involves auditor commentary.
The Auditing Standards Board of the American Institute of Certified Public Accountants already has a measure in place for imposing some mostly cosmetic alterations to auditor reports beginning in 2013. A few substantive changes are aimed at bringing US audit standards closer to the conduct in other countries. Accounting students have seen in recent years the introduction of international standards into CPA exam courses. Public accounting firms have scrambled to make changes to their procedures and are preparing for more.
The International Auditing and Assurance Standards Board is presently considering further changes to auditor reports. Of particular concern to the IAASB is improving reports to include comments that highlight matters the auditor believes are important to understanding the financial statements. The audit report is a crucial element of CPA review courses. Exam questions cover specific content of standard reports. Therefore, CPAs in the US understand that an auditor report conveys important information about the scope of the audit and the results.
Additional audit report details are intended to help investors and other interested parties discover the auditor’s assessment of various risks. The debate over this issue is the extent of additional liability it places on auditors and the companies issuing the financial statements. A concern has arisen about the cost to investors of litigation in the US against companies that encounter adverse risk consequences unanticipated by the auditors.
The IAASB believes that investors enjoy greater protections by holding more complete information and knowing that it has been conveyed to corporate audit committees. Proposed changes to auditor reports include adding conclusions about the adequacy of management assumptions and procedures regarding uncertainties, a statement identifying any material inconsistencies between financial statements and other information uncovered by the audit, plus more prominent placement of the auditor’s opinion.
All of these matters have implications to how much auditors communicate about the audit process. Enlightening investors rather than confusing them is an obvious challenge considering the complexity of audit procedures that accountants master in study for CPA licensing.
Although enhancements to auditor reports are clearly demanded by investors and accounting bodies, the degree of change is vociferously debated. The diversity of viewpoints is focused on assuring that audit reports remain primarily informative pieces rather than defenses of auditor actions. Some insiders strongly feel that the auditor’s report is not the appropriate place for communicating new information because such messages are the responsibility of company management.
As accounting students soon discover, the choice of words in an auditor’s report is very specific. Learning the terms and their usage is the key to CPA exam study for audit. Therefore, adding any statement such as auditor judgment of an “acceptable” range for valuation of financial instruments makes a substantial impact. Accounting authorities remain uncertain about how much auditor reports of the future will vary from their present form in meeting the attest function of an audit. But, CPAs can expect some changes during their careers from the auditor report language they learned as students.
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