In December 2015, the Auditing and Assurance Standards Board (AUASB) issued ASA 701: Communicating Key Audit Matters in the Independent Auditor’s Report, detailing new Key Audit Matters (KAMs) that auditors will be required to include in their reports.
ASA 701 first became mandatory for all listed companies in Australia for financial years ending after 15 December 2016, meaning it will impact the majority of Australian companies for their 30 June 2017 reporting.
HLB Mann Judd corporate advisory and assurance partner, Nicholas Guest, spoke to Accountants Daily about the additional KAMs and what they mean for both auditors and companies.
“The aim is to enhance auditor reporting and provide greater, more meaningful information to users of the financial statements,” Mr Guest said.
“Auditors need to demonstrate their independence in drafting and disclosing robust and meaningful information on KAMs to users of the financial statements, while also being conscious of potentially disclosing new information to the market about the company which has not previously been revealed.”
Mr Guest emphasised that the changes aren’t about what the auditor assesses, they're about what information they make public.
“It’s the same matter but what would've historically been recorded in an internal report to the audit committee is now actually being captured within the audit report, which is getting attached to the published financial statements,” he said.
“The real change for the auditor is being able to capture that information in a concise form, which is meaningful and can be understood by the wider users of the financial statements.”
Companies need to be cognizant of the changes, to what information will be made public, to give them the chance to release that information first if they so desire.
“The company is potentially going to have additional information disclosed to their shareholders by the auditor, which they may not have previously communicated themselves,” Mr Guest said.
“So what you might end up seeing is more disclosure or releases made by the company pre the auditor releasing the similar information.”
Mr Guest said that in practise, the auditors need to engage with the company’s audit committees earlier as they both adjust to the new requirements.
“The key thing there again is greater engagement between auditors and the audit committees and management to really flesh out and identify which matters are going to be disclosed,” he said.
“It's going to be a period of transition as people get across the kind of information that's going to be made public and making sure that the company is meeting its disclosure requirements and if it needs to make any announcements that it does in its own right, potentially pre the auditor doing it.”