United States

ASB issues exposure draft on auditor reporting


The Auditing Standards Board (ASB) has monitored the auditor reporting projects of the International Auditing and Assurance Standards Board (IAASB) and the Public Company Accounting Oversight Board, as well as the IAASB’s project addressing the auditor’s focus on financial statement disclosures. After considering the implications of these projects on audits of nonissuers, the ASB recently proposed changes to U.S. generally accepted auditing standards as described in an Exposure Draft, which includes the following proposed Statements on Auditing Standards (SAS) that would superseded AU-C sections 700, 705 and 706:

  • Forming an Opinion and Reporting on Financial Statements – This proposed SAS includes some changes to the format of and verbiage used in the auditor’s report issued for audits of nonissuers. For example, the auditor’s opinion would be required to be presented first in the auditor’s report, and the descriptions of the responsibilities of management and the auditor would be expanded. The auditor’s report also would be required to include an affirmative statement about the auditor’s independence and fulfillment of other ethical responsibilities.
  • Communicating Key Audit Matters in the Independent Auditor’s Report – Communication of key audit matters (KAMs) would not be required for audits of nonissuers. However, if the terms of the audit engagement include reporting KAMs, the requirements of this proposed SAS would apply.
  • Modifications to the Opinion in the Independent Auditor’s Report – The main changes in this proposed SAS relate to the form and content of the auditor’s report when the opinion is modified.
  • Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report – The principal changes resulting from this proposed SAS relate to clarifying the relationship between emphasis-of-mater paragraphs and the communication of KAMs in the auditor’s report. This proposed SAS also requires the auditor to use an appropriate heading for an emphasis-of-matter paragraph that includes the term “Emphasis of Matter.”

If finalized, the Exposure Draft also would result in amendments to other existing AU-C sections, including the following, among others:

  • If, after considering identified conditions or events and management’s plans, the auditor concludes that substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time remains, the auditor would be required to include a separate section in the auditor’s report under the heading “Substantial Doubt About the Entity’s Ability to Continue as a Going Concern” instead of an emphasis-of-matter paragraph.
  • The auditor would be required to communicate with those charged with governance about the significant risks identified by the auditor as part of the required communication of an overview of the planned scope and timing of the audit.
  • Certain proposed amendments are intended to focus the auditor’s attention on disclosures earlier in the process of auditing financial statements.

If finalized, the proposed SASs and amendments would be effective no earlier than for audits of financial statements for periods ending on or after June 15, 2019. The proposed SAS is available for comment until May 15, 2018.