Auditor reporting

The audit opinion paragraph has been moved to the start of the auditor’s report.

There is a new section, “Basis for Opinion.” It must contain:

• a clear statement of independence; and
• a clear statement of compliance with the applicable ethical requirements, including which ethical standards were followed.

A new section titled “Material Uncertainty Related to Going Concern” is required when events or conditions have been identified that may cast doubt over an entity’s ability to continue as a going concern, but the use of the going concern assumption is appropriate, and this is adequately disclosed in the financial statements.

Previously, an “Emphasis of Matter” section would have been used in these circumstances.

Directors’ responsibilities have been clarified, particularly in relation to going concern.

There are also more-detailed descriptions of the responsibilities of the auditor, including for going concern, and the key features of an audit.

Auditors have the option to move some of the description of their responsibilities to an appendix or refer readers to the website of a relevant authority that describes those responsibilities.

“Other Information” is defined as information (financial and non-financial) in an entity’s annual report other than financial statements and the auditor’s report.

The auditor is required to read this information and consider whether it is inconsistent with the financial statements or with anything learned during the audit.

The auditor’s report must include a new section titled “Other Information” that sets out which parts of the annual report the the auditor obtained and read as a final version.

This section is not required if other information was not available to the auditor by the date the auditor’ report was signed. The exceptions are New Zealand Financial Market Conduct (FMC) reporting entities and listed entities in Australia (see “Changes impacting certain audits” below).

The requirement for listed entities in Australia and listed issuers in New Zealand to include a new section on key audit matters (KAM) is the most talked about change to the auditor’s report.

Key audit matters are those that were considered to be of greatest significance in the audit: risks, judgements, estimations, events and transactions.

For each KAM, the auditor must:

• explain why the matter was considered a KAM
• describe how it was addressed in the audit, and
• provide a reference to the related disclosure if there is one.

The inclusion of KAM is such a big change that it has its own separate auditing standard: ISA 701 Communicating Key Audit Matters in the Independent Auditor’s Report.

Auditor’s reports for all entities must now include a section on “Other Information” – that is, information (financial and non-financial) in an entity’s annual report other than financial statements and the auditor’s report.

However, there are additional reporting requirements for New Zealand FMC reporting entities considered to have a higher level of public accountability, and listed entities in Australia.

For these entities, the “Other Information” section must list any parts of the annual report that were not available at the time the auditor’s report was signed. If no other information was obtained, the auditor’s report must state what other information is expected to be obtained after it is signed.

In New Zealand, all FMC reporting entities considered to have a higher level of public accountability will be required to include the name of the engagement partner in the auditor’s report.

In Australia, those entities that are required to do so by law and regulation will need to include the name of the engagement partner.