Hard work in the Audit Quality Forum working group

When I got involved with the Audit Quality Forum working group, I knew it was
not going to be an easy task, trying to come up with the solution to the audit

We would not be having this debate from one decade to the next if it was
easy. But how do you come up with a solution that will give investors the
information they want but without compromising auditors’ duties on
confidentiality or putting additional burdens on business?

We all agree that there needs to be transparency and openness in the
independent audit. And if investors believe they need more information, then
they should have it.

The key issues revolve around establishing exactly what extra information
investors want and, just as important, whether the audit report is the most
appropriate place to provide it.

The working group was able to establish a few key areas that investors felt
they were not party to and wished to be – in particular, the more judgmental
issues that auditors focus on and the findings from the audit. Investors want
more assurance from the audit report, but without all the detailed legal
language that is currently a major and standard part of each audit report.

Currently, auditors may make statements on emphasis of matters or accounting
records only if they have concerns about them. We are now recommending that this
is turned around so that auditors can make clear and positive statements about
both these issues.

We are also suggesting that much of the boilerplate language in audit reports
is shunted to the back of the reports.

The extent to which company-specific information for the audit should be in
the audit report needs to be balanced against the information requirements of
IFRS (for instance, on judgmental issues) and the business review, and indeed
whether it is more appropriate for some of the detail of the discussion with the
auditors to be included in the audit committee report. We need to avoid putting
yet more boilerplate language in the audit report.

These fundamental changes to the audit report as we know it today will
provide the openness and transparency that investors are looking for, but
without necessarily compromising auditors’ confidentiality.

But before these changes are put in place, further debate is essential.

Richard Reid is audit quality chairman of the working group

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