The new requirements for enhanced auditor reporting came into effect for periods ending on or after 15 December 2016.

If, like many Australian companies, your reporting period is 30 June, your next auditors’ report (30 June 2017) will look very different.

Auditors’ reports have changed to improve their communicative value and to prioritise the most important matters by re-ordering the content.

The main changes are the inclusion of ‘Key Audit Matters’ for listed entities, which detail the most important matters of the audit. The audit opinion is now placed at the beginning of the report and there’s a revised approach to reporting ongoing concerns.

Although all auditors’ reports, prepared in accordance with the Australian Auditing Standards, will change, some aspects only apply to listed entities. The below example report indicates which changes are applicable to listed entities only.

The enhanced reporting requirements stipulate that the auditor’s opinion, and the basis for that opinion, come first. However, the order of the remaining sections is flexible. The intention is that sections appear in order of importance to users. This means auditors’ reports are more specific and relevant to each entity.

Other paragraph headings required for inclusion in the report are:
– Material uncertainty related to going concern
– Key audit matters
– Responsibilities of management (or those charged with governance) for the financial report
– Auditor responsibilities for the audit of the financial report.

When looking at new auditors’ reports for the 31 December 2016 reporting season, most adopted the below layout:

Basis of Opinion
Emphasis of Matter (where applicable)
Material Uncertainty Related to Going Concern (where applicable)
Key Audit Matters (optional for unlisted entities)
Other Information (additional reporting for listed entities)
Responsibilities of Management and Those Charged with Governance of the Financial Statements
Auditor’s Responsibilities for the Audit of the Financial Statements (additional reporting for listed entities)
Report on Other Legal and Regulatory Requirements (where applicable)
Engagement Partner Name (where applicable)

Listed entities must include the Key Audit Matters (KAMs) section.

Other entities have the option to include or not. The KAMs provide information on matters that, in the auditor’s professional judgement, are of most significance to the audit.

Each KAM reported must include:
• an appropriate sub-heading
• a description of the KAM
• an explanation or rationale about why it is significant
• how the matter has been addressed.

It is hoped that the inclusion of KAMs will provide greater transparency on important issues, identified by the auditors.

The examples we saw of KAMs in auditors’ reports for the 31 December 2016 reporting season included:
• the carrying value of non-current assets
• recognition and measurement of rehabilitation provisions
• the carrying value of inventory.

‘Other information’ relates to any financial and non-financial information included in the annual report, but that does not form part of the financial report. This section confirms that directors/management are responsible for other information, and that the auditor’s opinion does not cover this.

However, auditors are responsible for reviewing the other information to ensure it is not materially inconsistent or misstated. If it is, they must report any identified issues.

In regards to ‘going concern’, the new reports include an expanded description of the responsibilities of directors/management and the auditor in relation to going concern. These responsibilities have not changed, but are now included as part of the auditor’s report.

These reporting changes will affect the style, format and content of your auditor’s report this 30 June reporting season.

Take the time to understand what these changes mean for your reporting and how they will impact your users. Are you ready for your new auditor’s report?

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