Introduction to IAASB

Discuss about the Understanding and analysis the key changes in the audit report requirements.

Increasing global business diversity and emergence of international corporations have led to formation of IAASB (International Auditing and Assurance Standards Board) (Lennox & Pittman, 2010). The Board for IAASB provides several broad frameworks to companies present worldwide regarding their reporting and auditing standards they need to adhere to. Adhering to such standards auditing has proved to be beneficial for companies and also allowed them to comply with various regulatory measures and norms of corporate governance. In short, it has allowed companies capability to adapt to corporate governance features. While introducing norms and standards for worldwide companies, there have been several relevant inputs obtained from countries across the world (Christensen, Glover & Wolfe, 2014). In Australia, corporate governance board ASIC (Australian Securities and Investment Committee) along with the CPA (Certified Practicing Accountant) publishes various auditing and accounting requirements that firms within the country need to adhere to. The Board takes relevant inputs from accounting and auditing firms across Australia in order to understand new regulations impact on the Australian firms. Therefore, the scope of the current analysis pertains to understanding relevant auditing requirement changes that have been brought about in the recent period and there implications from the point of view of various auditing firms in the country that have been covered in earlier literature reviews. 

Auditing is a major requirement across all countries that all companies need to apply. While the international auditing board devises new standards and regulations, they are adapted across by the countries and across all organizations (Bedard et al., 2012). Complying with new set of standards that has been currently proposed has several positive impacts and is in accordance to investors and auditing community demands. The study problem analyses the new set of standards that were not present earlier alongside their possible implications on the future on Australian companies as proposed by auditing companies (Gold, Gronewold & Pott, 2012). The proposed framework for the study hence will aim at evaluating the following research objectives;      

• Research Objective 1: To analyse the changes that has been brought about in the ISA
• Research Objective 2: To understand the potential implications of the changed ISA on businesses across Australia as per auditing firm’s present there
• Research Objective 3: To understand the scope of the changes that addresses issues raised by international investment community

The IAASB newly accommodated auditory standards and requirements have been published in its own website and it has also been reviewed by various well-known auditing firms across the globe (Bell & Griffin, 2012). Taking into consideration scope of earlier literature reviews, some of the following articles have provided relevant insights into changes that have been accommodated;  

• Auditing and Assurance Standards Board 2015 AUASB invites comments on Exposure Draft 01/15 – enhancements to auditor reporting
• Christensen, B.E., Glover, S.M. and Wolfe, C.J., 2014. Do critical audit matter paragraphs in the audit report change nonprofessional investors’ decision to invest? Auditing: A Journal of Practice & Theory, 33(4), pp.71-93
• Christensen, B.E., Glover, S.M., Omer, T.C. and Shelley, M.K., 2016. Understanding audit quality: Insights from audit professionals and investors. Contemporary Accounting Research, 33(4), pp.1648-1684.
• Ernst and Young 2016 Enhanced auditor’s reporting Assurance – Special edition

Corporate Governance in Australia

Enhanced reporting for auditors has been seen to be integral and crucial for adding value to the current state of financial statement audit, it is also encouraged to provide relevance to the profession of auditing (Gold, Gronewold & Pott, 2012). The Auditor Reporting standards which are new and revised provide the foundation for the future of global auditor’s reporting, which have enhanced communication with auditors. The new standards that have been laid down in the current IAASB framework for new and revised Auditors Reporting standards provide the framework for future global auditor reporting.

Reasons for changes in Auditing Requirements

The auditor’s report is the key deliverable tending to the yield of the audit procedure. Investors have stated that financial statements have flagged that the auditor’s assessment of the money related explanations; others consider auditor’s report to be immensely important (Tanyi, Raghunandan & Barua, 2010). IAASB’s considerations in building up these models have been educated by worldwide research, open interview, and partner outreach, including appropriately appointed global scholastic research on client observations, Public consultation in May 2011, June 2012, and July 2013. Such immensely large data and information collected from varied sources have allowed developing understanding related to better and more comprehensive auditing requirements meeting. Ernst and Young (2016) proposed that worldwide roundtables and extra effort exercises and monitoring of, and connection with, policymakers and national evaluating standard setters with reviewer announcing activities, for example, the European Commission, the UK Financial Reporting Council, the US Public Company Accounting Oversight Board. Advice and comments obtained from the varied committee and research propositions have led to arriving at comprehensive analysis related to the processes.

Changing ISAs

According to IAASB framework proposed changes in ISA, there are various types of changes that have been indicated to be adopted (Gray et al., 2011). The changing ISA’s has to notice so as to be able to understand relevant implications arising from the same. The new and amended Auditor Reporting standards include changes made to the following;

• ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements;
• New ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report;
• ISA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report;
• ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report;
• ISA 570 (Revised), Going Concern;
• ISA 260 (Revised), Communication with Those Charged with Governance; and
• Conforming amendments to other ISAs.

Apart from the above-stated frameworks, there is expected to be more changes which will be brought about in ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information that incorporates new and changed revealing necessities identifying with other data that is incorporated into a firm’s yearly report. The IAASB will likewise propose changes to reviewer’s reports on uncommon reason monetary explanations in a destined to be discharged introduction draft.

IAASB New Standards and Implications for Australian Companies

Expected benefits from changes to the ISA and auditor’s report

The auditor’s report is the key deliverable tending to the yield of the review procedure. The IAASB expects for its new and reconsidered Auditor’s reporting norms to bring about a reviewer’s report that builds the trust in the review and the money related proclamations, which is in the general population premium. Carcello, Hermanson, and Ye (2011) evaluated the IAASB trusts that notwithstanding the expanded straightforwardness and improved enlightening estimation of the auditor’s report, changes to reviewer revealing will likewise have the advantage of improved correspondences between the auditor and investors. It is also able to maintain communication amongst reviewers and those accused of administration. Expanded consideration by the administration and those accused of administration (e.g., the review board of trustees) to the exposures in the budgetary articulations to which reference is made in the auditor’s report. In order to analyze focal point of the auditor on issues to be accounted for, which could buy implication result in an expansion in proficient distrust. Implications of new standards in auditing are bound to impact communication amongst various stakeholders of the business with the auditor which will enhance the effectiveness of the overall procedure. 

Effect on Financial Reporting

The improvements to the auditor’s report expand upon the fundamental ideas in an ISA review tending to how a hazard based review is performed and what is required to be spoken with those accused of administration. The progressions to the ISAs don’t change the hidden work exertion required in an ISA review, yet rather center on expanding straightforwardness about the review that was performed. Enhanced communications and increased attention of management on the business will help overall companies in Australia to get maximum benefits. It will also allow enhancing corporate governance procedure for firms. Through accomplishment of new and latest standards for auditing requirements, a lot of benefits can be generated from the overall auditing processes in terms of corporate governance.    

Gerakos and Syverson (2015) evaluates interchanges in the examiner’s report are relied upon to be substance particular so as to be instructive to clients, it remains the obligation of administration, with the oversight of those accused of administration, to convey pertinent data to clients about the element and its monetary execution, incorporating furnishing satisfactory exposures as per the appropriate money related revealing system.

Key enhancements

Compulsory for audit reviews of financial statements of listed companies on the deliberate application for elements other than recorded elements. New area to convey key audit matters (KAM). KAM are those issues that, in the auditor’s judgment, were of most centrality in the review of the present time frame financial statements articulations. Exposure of the name of the engagement partner with exception of “harm’s way” can provide details pertaining to auditing needs. For all audits, opinion is required to be exhibited initially, trailed by the regulations for supposition segment, unless law or control recommend something else (Mock et al., 2012). Improved auditors providing an account of going concern (GC), which including, the portrayal of the particular duties of administration and the inspector for GC.

Changes to Auditor Reporting

A different segment when a material vulnerability exists and is satisfactorily unveiled, under the heading of the material related uncertainty of going concern. New requirement to challenge ampleness of revelations in regards to close view in perspective of the pertinent financial reporting related to announcing structure when occasions or conditions are distinguished that may provide a reason to feel ambiguous about noteworthy a substance’s capacity to proceed as a GC. Confirmed proclamation about the auditor’s freedom and satisfaction of pertinent moral obligations, with exposure of the purview of the beginning of those prerequisites or reference to the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants. Improved depiction of the duties of the audit and key highlights of a review, alongside with the arrangement that specific parts of this portrayal might be exhibited in an informative supplement to the auditor’s report. In case law or direction or national auditing guidelines explicitly allow, by reference in the reviewer’s answer to a site of a proper expert.

Consistency versus relevance

The IAASB recognized the significance of accomplishing a fitting harmony between the requirement for medicine in the standard to advance consistency in which matters are resolved and conveyed as KAM, with the need to take into account inspector judgment to guarantee that the KAM imparted in the reviewer’s report are as substance particular and important as could be expected under the circumstances (Mihret, James & Mula, 2010).

Appropriately, ISA 701 sets out a choice structure for reviewers utilizing the interchanges with those accused of administration as a beginning stage. From the issues spoke with those accused of administration, the reviewer decides those issues that required huge evaluator consideration. In satisfying this prerequisite, the auditor is constantly required to expressly consider territories of higher evaluated dangers of material error, or critical dangers recognized as per ISA 315 (Reexamined), Distinguishing and Surveying the Dangers of Material Misquote through Understanding the Substance and Its Condition. Huge auditor judgments identifying with territories in the monetary proclamations that included noteworthy administration judgment, including bookkeeping gauges that have been recognized as having high estimation vulnerability.

The impact on the review of critical occasions or exchanges that happened amid the year. From the issues that required critical evaluator consideration, the inspector figures out which were of the most criticalness in the review of the money related explanations of the present time frame and along these lines are KAM.

Key Audit Matters(KAM)

Sensitivity Matters

The IAASB tended to particular concerns raised about the correspondence of issues for which data has not been freely uncovered by the substance (“delicate issues”). The IAASB consented to include a necessity in ISA 701 to take into account the likelihood, into great degree uncommon conditions that the inspector may choose not to impart an issue resolved to be a KAM in the examiner’s report. Carcello, Hermanson, and Ye (2011) state that the IAASB concurred that such a necessity ought not to be excessively tolerant in such manner or expressly deny the correspondence of specific sorts of delicate issues in the reviewer’s report. Analysing relevant framework from the point of view of IAASB reveals that various implications will be brought about in cases of changes in auditing requirements. However, the overall changes reveal benefits to be arising from such endeavors creating possibilities for better format and mode of financial reporting.    

It is amongst the most critical parts associated with any study and therefore calls for unique attention. This part of the study is where the scholar adopts a comprehensive outline of research methodology in a bid to successfully complete the study by fulfilling its purposes and acquiring solutions to the identified research problems (Taylor, Bogdan & DeVault, 2015). The chapter commences with a definition of the varied parts of research methodology before going on to provide an explanation for the adoption of appropriate techniques for carrying out this study

Research Philosophy 

It establishes the general make-up of the study by placing its supporting parts. A scholar is free to pick from the four research philosophies, which are:

1. Epistemology
2. Ontology
3. Rhetoric
4. Axiology

A scholar can fall back on Epistemology research philosophy when the key purpose of a study is the breaking down of the nature and order of essentials that are present on the accurate part. However, the adoption of ontology research philosophy is done in studies in which the key purpose of the researcher is the replicating of individual understanding regarding realism and candid situations (Matthews & Ross, 2010). The deployment of Rhetoric research philosophy is done in studies with the key aim of doing a thorough check of problems and study of all associated parts for interpreting results to make judgments. The use of Axiology research philosophy is made in studies where the researcher makes use of aesthetics and moral values as the most key variables for the study. In order to conduct the study, epistemology philosophy will be used; the approach will allow breaking down of relevant materials relevant to the study. As in this case various auditing requirements are present, therefore in order to cater to all those requirements the concept related to each standard needs to be identified and then analysed accordingly.

Going Concern(GC) Reporting

Approach to the Research

The decision on the part of the intellectual as to the taking on of quantitative and qualitative approach and /or deductive or inductive approach creates an element of research approach.

Research approach whose basis is quantitative techniques falls back on the use of numbers. This is then evaluated by the use of mathematical and/or statistical tools. On the other hand, the qualitative approach involves the undertaking of reminiscent assessment by the use of a subjective approach for acquiring justifications to issues that are being studied.

Deductive or Inductive approach 

A research approach whose basis is deductive approach is that in which use of theories is done for deducing results (Ritchie et al., 2013). However, an inductive study starts with the pursuing and studying of observations and ends with the derivation of results that enable the making of theories. The study will mostly adopt qualitative as well as quantitative approach with inductive techniques. Meaning one concept related to the study will lead into another. Concepts related to changes in ISA will be leading to another change in the ISA requirement.

Research Design

This is amongst the most vital elements of research methodology since it establishes the methodology’s effectiveness and functionality and establishes an operational research method in this way (Lewis, 2015).

Sorts of Research design

A research design is of four sorts that scholars can pick from and they’re:

1. Exploratory
2. Descriptive
3. explanatory
4. predictive

Researchers fall back on an exploratory study in such studies that do not have enough information and it is vital that the same be explored from varying sources for designing tangible solutions. A researcher takes on an Explanatory design where his key purpose is to select basic associations that are common among the variables under observation. The reason for pursuing a descriptive research design is in studies that entail comprehensive account of definite occurrences. The reason for undertaking a Predictive research design is such studies where the interpretation of outcomes of explanatory research is done for predicting forthcoming incidences. Amongst the varied types of research design available, exploratory design methods will be used for the study procedure. Exploratory research design procedure will help evaluating and arriving at bases for all relevant concepts. In exploratory research design is ideally suited for auditing and accounting research procedures. 

Research method

The best description of Research methods is that they are the tools that a researcher adopts for collecting information from prime sources with the objective of sustaining research design and achieving research objectives. A researcher can adopt diverse research methods and we discuss them next.

Auditor Independence and Ethical Obligations

Tools for Research

Observation: Observations are primarily of two sorts and they are structured and participative. The adoption of structured observations is done in qualitative studies in which a researcher’s observations are systematically recorded based on predefined segments. The adoption of Participative observation is necessary for quantitative studies where researcher participates in the actual set up in conjunction with more sample participants and infers information on the basis of individual experiences.

Interviews: A scholar can adopt personal interviews of two sorts and they’re Structured and semi-structured. In a structured interview, the interviewee performs in line with a predefined code that’s established by the interviewer and thus has limited flexibility. A Semi-structured interview is a more flexible interview in which some sets of prefixed behavior guides the conversation among the interviewer and interviewee though not fully controlling it.

Questionnaires: For a specified research, based on the sort of study and the research objectives, that research can pick from close and open-ended questionnaires. A listing of questions having pre-set opinion options make up a close-ended questionnaire and the sample respondent must make a choice from the choices that are given. However, open-ended questionnaires don’t impose any restrictions on the respondents as far as providing an opinion is concerned.

Focus groups: This is a technique where the researcher creates a group of a precise number of people with the aim of pursuing dialogue on a specified problem matter. While such discussions are underway the researcher notes down the outlooks of all group members and thus infers results.

The study will make use various research methods using varied types of procedure at the same time in order that wide range of data can be collected. The scholar will make use of interviews, surveys and other forms of research in order to arrive at findings related to the study.

Sampling and associated Techniques

It is the procedure of the selecting of the sample that’s regarded as an apt portrayal of the complete population (Neuman, 2013). Normally a sample amount is picked for carrying out a research since it is nearly unfeasible to avail outlooks of every member that makes the population. The next step is the extrapolation of the results acquired from the sample and this helps in availing semblance with population outlooks. The researcher is free to pick from probability or non-probability sampling methods.

Techniques of Data compilation

Data is normally compiled by the use of two techniques and they’re primary and secondary sources. Another name for Primary data is virgin data and it’s compiled originally for fulfilling definite necessities of research that is being studied. However, secondary sources consist of such information that has already been published (Palinkas et al., 2015). In a study, the Primary data had been compiled from a couple of groups of respondents, namely, workers and managers of case corporations. Several of the workers had been approached in person in workplaces of the corporations arbitrarily and appealed to take part in surveys. After they had agreed they were provided with questionnaires information was compiled. As approaching all workers in person wasn’t possible email ids had been acquired from their workplaces and they had been requested to chip in by filling up the questionnaires that they were sent via emails and answer via email. The managers had been approached in person for interviews. This was done by arranging appointments and meet up with them at the specified time.  Collecting data and perspectives from all auditors in Australia employed at auditing firms is not possible; hence the scholar will adopt sampling techniques to arrive at findings related to the study. 

The sources from compiling Secondary data in studies have been several and include articles, books, journals, newsletters, government periodicals, magazines,  newspapers and online publications, to name a few.

Data Analysis Techniques 

Frequency analysis in conjunction with more mathematical and statistical tools had been made use of for the analysis of quantitative data that’s acquired from questionnaires. The recording and analysis of the data have been done by the use of MsExcel Toolpack. A descriptive analysis has been done of the Qualitative data that’s been acquired through interview schedules. The study will analyze qualitative data according to descriptive analysis methods and it will adopt statistical procedures for quantitative analysis.

Principled considerations

• It had been guaranteed that manhandling of information hasn’t been was initiated in any form.
• All respondents are offered safety of info through assurance of secrecy, privacy, and inscrutableness
• The respondents’ participation had been through free assent and they had not been compelled in any form for participating.
• The research reason, objectives, and span of this study had been properly clarified to the respondents for ensuring ease of communication.
• The researcher also guaranteed no partiality in any form.

Restrictions

The study has been restricted since the sample amount made use of for this study is extremely small when weighed against the population size. This is the reason behind the sample not being able to be regarded as an appropriate representative of the complete population.

Reference Lists

Bedard, J.C., Sutton, S.G., Arnold, V. and Phillips, J.R., 2012. Another piece of the “expectations gap”: What do investors know about auditor involvement with information in the annual report?. Current Issues in Auditing, 6(1), pp.A17-A30.

Bell, T.B. and Griffin, J.B., 2012. Commentary on auditing high-uncertainty fair value estimates. Auditing: A Journal of Practice & Theory, 31(1), pp.147-155.

Carcello, J.V., Hermanson, D.R. and Ye, Z., 2011. Corporate governance research in accounting and auditing: Insights, practice implications, and future research directions. Auditing: A Journal of Practice & Theory, 30(3), pp.1-31.

Christensen, B.E., Glover, S.M. and Wolfe, C.J., 2014. Do critical audit matter paragraphs in the audit report change nonprofessional investors’ decision to invest?. Auditing: A Journal of Practice & Theory, 33(4), pp.71-93.

Gerakos, J. and Syverson, C., 2015. Competition in the audit market: Policy implications. Journal of Accounting Research, 53(4), pp.725-775.

Gold, A., Gronewold, U. and Pott, C., 2012. The ISA 700 auditor’s report and the audit expectation gap–do explanations matter?. International Journal of Auditing, 16(3), pp.286-307.

Gray, G.L., Turner, J.L., Coram, P.J. and Mock, T.J., 2011. Perceptions and misperceptions regarding the unqualified auditor’s report by financial statement preparers, users, and auditors. Accounting Horizons, 25(4), pp.659-684.

Lennox, C. and Pittman, J., 2010. Auditing the auditors: Evidence on the recent reforms to the external monitoring of audit firms. Journal of Accounting and Economics, 49(1-2), pp.84-103.

Lewis, S., 2015. Qualitative inquiry and research design: Choosing among five approaches. Health promotion practice, 16(4), pp.473-475.

Matthews, B. and Ross, L., 2010. Research methods. Longman/Pearson Education.

Mihret, D.G., James, K. and Mula, J.M., 2010. Antecedents and organisational performance implications of internal audit effectiveness: some propositions and research agenda. Pacific Accounting Review, 22(3), pp.224-252.

Mock, T.J., Bédard, J., Coram, P.J., Davis, S.M., Espahbodi, R. and Warne, R.C., 2012. The audit reporting model: Current research synthesis and implications. Auditing: A Journal of Practice & Theory, 32(sp1), pp.323-351.

Neuman, W.L., 2013. Social research methods: Qualitative and quantitative approaches. Pearson education.

Palinkas, L.A., Horwitz, S.M., Green, C.A., Wisdom, J.P., Duan, N. and Hoagwood, K., 2015. Purposeful sampling for qualitative data collection and analysis in mixed method implementation research. Administration and Policy in Mental Health and Mental Health Services Research, 42(5), pp.533-544.

Ritchie, J., Lewis, J., Nicholls, C.M. and Ormston, R. eds., 2013. Qualitative research practice: A guide for social science students and researchers. Sage.

Tanyi, P., Raghunandan, K. and Barua, A., 2010. Audit report lags after voluntary and involuntary auditor changes. Accounting Horizons, 24(4), pp.671-688.

Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.