New Auditor Reporting: Providing

insights and transparency

VALUE OF AUDIT: SHAPING THE FUTURE OF CORPORATE REPORTING
July 2016
Background

obtained and how they exercised professional skepticism.

reports have been seen as two sides to a

Overcointime,withaudit
auditors issuing a binary pass or fail verdict on

Besides the inclusion of KAM, the other changes such as the

order of presentation in the auditors report and the requirements
for an enhanced description of the responsibilities of the auditor,
management and those charged with governance set the new
auditors report miles apart from the current report.

the financial statements. It is either the financial statements

give a true and fair view of the financial position, financial
performance and cash flows of the reporting entity or they
dont. While this approach remains valuable, many believe it is
no longer enough. This is because auditors have more insights
to share, and users of financial statements are eager to know
about them. Likewise, users of financial statements want more
transparency about what the auditors responsibilities are,
what the auditor considered to be the key areas of the audit
and details of work done. Accordingly, several regulators and
standard setters have responded with measures that would
require auditors to say more.
In this publication, we discuss the key changes to the new
auditors report in order for users of financial statements,
particularly shareholders, investors, audit committee,
management, regulators, analysts and other stakeholders to be
better informed of the changes so they can appreciate the new
auditors report and be in a position to assess the quality and
value of an audit.

Enhancing value of audit through a global change

The International Auditing and Assurance Standards Board
(IAASB) has after a five-year project, released the New and
Revised Auditor Reporting Standards and Related Conforming
Amendments (the Standards) which will transform the auditors
report and for listed entities, will include descriptions of Key
Audit Matters (KAM). For audits undertaken in accordance with
the International Standards on Auditing (ISAs), the IAASBs
amended Standards are effective for annual periods ending on or
after 15 December 2016, although auditors can choose to apply
the new requirements earlier.
KAM are those matters that, in the auditors professional
judgment, were of most significance in the audit of the financial
statements and were addressed in the context of the audit of the
financial statements as a whole, and in forming an audit opinion
thereon. For KAM to be useful, the auditor is required to describe
them and their significance in the context of the audit as a whole
and not as separate elements requiring a discrete opinion.
The description of KAM is written by the auditor based on their
judgment. Therefore, the manner in which KAM is described
would most likely vary from auditor to auditor, and from one audit
engagement to another. A KAM description would generally meet
the requirements of the Standards if it is:
Fact based;
Tailored to the reporting entity;
Concise and free from technical jargon;
In sufficient detail to explain how the KAM was addressed.
As a result of this new requirement, auditors are expected to
provide insights into the audit by discussing the following to the
extent that they qualify as KAM:
Key risk areas where risks of material misstatements and
significant risks were identified during the audit;
Key matters on which management exercised significant
judgments and accounting estimates involving high
estimation uncertainties; and
Significant events and transactions that occurred during the
period.
In effect, through KAM, auditors have the opportunity to describe
what they saw as a risk, the audit work performed, the evidence

Users of financial statements will therefore benefit from an

early appreciation of the requirements of the Standards so
as understand the additional information to be provided in
the auditors report, and to evaluate the quality and value of
procedures performed by the auditors. The IAASB considers that
there are immense benefits to be derived from the new auditors
report, amongst which are the following:
Enhanced communication between auditors, investors and
those charged with governance;
Increased user confidence in audit reports and financial
statements;
Increased transparency, audit quality, and enhanced
information value;
Renewed auditor focus on matters to be reported that could
result in an increase in professional skepticism;
Enhanced financial reporting in the public interest.
The requirements to enhance the auditors report will take
different forms across the globe, but the goals are consistent.
In some jurisdictions, the local laws governing audit of financial
statements are based on the ISAs. It is therefore expected that
those jurisdictions will incorporate these new requirements into
their laws. On the other hand, some jurisdictions may impose
additional requirements. For example, in the UK, some of the
additional requirements include an explanation of the concept of
materiality in planning and performing the audit.

Key changes and impacts

as to the auditors findings from the work performed on

Other information.
Impact:
Management and the audit committee will begin to
determine which document(s) will be within the scope
of other information and establish procedures to
ensure that these are provided to the auditor on time.
5.

An enhanced description of responsibilities of management

and those charged with governance, including a description
of responsibilities for assessing the reporting entitys ability
to continue as a going concern.
Impact:
The audit committee will begin to examine the process
used by management in assessing the reporting
entitys ability to continue as a going concern and the
robustness of the related disclosures.

6.

Partner Disclosure of the name of the engagement

partner.
Impact: None.

These key changes and impacts have been analysed only on the
basis of the requirements of the new auditor reporting Standards.
Are you ready for change as you should be?
1.

Understand the
requirement in
our jurisdiction

2.

The changes to the auditors reports are intended to enhance

insights and improve transparency. The following are the key
modifications, together with the possible impacts in Nigeria:
1.

Opinion The Opinion section is required to be presented

first. This will be followed by the Basis for Opinion section,
unless local laws prescribe otherwise.
Impact: None.

2.

Basis for Opinion The auditor is to make in this section,

an affirmative statement about the auditors independence
and fulfilment of relevant ethical responsibilities with
disclosure of the jurisdiction of origin of those requirements
or reference to the International Ethics Standards Board for
Accountants Code of Ethics for Professional Accountants.
Impact:
Those charged with governance will begin to assess
the independence of the auditor (both the firm and the
engagement partner) when appointing the auditor.

3.

KAM The description of KAM shall be disclosed. This

is mandatory for audits of financial statements of listed
entities and voluntary for other entities.
Impact:
Management and the audit committee will be required
to engage the auditor early enough to allow for timely
identification and communication of KAM, together
with the auditors responses to those matters.

4.

A new section on Other Information, setting out the

auditors and managements responsibilities for the Other
Information included in the annual report and a statement

For Audit Committees and Management

The illustration below sets out some of the actions that
audit committees and management can take before the
expanded auditors report is issued on their financial
statements.
Discuss with
your auditor their
implementation
plan

Discuss with your

auditor how the
new audit report
will look

Agree timeline
with your
auditor for
first year of
implementation

For Investors
Investors should start planning how to use the information
in the new audit reports by:
understanding what information will be available in
the expanded audit report;
familiarizing self with expanded auditor reporting, for
example, by reviewing reports issued in the UK;
signaling to auditors their expectations regarding the
auditors reports;
identifying how the information may be used to
evaluate and compare companies; and
determining how the information may be used to
engage audit committees and auditors.

Our thoughts

The enhanced auditors report is a new dimension charted

for the future of a more transparent financial reporting
and its implementation will bring both opportunities
and challenges. Despite the challenges, feedback from
both users and the regulators on the enhanced reports
as implemented in the UK have been extremely positive.
In our view, the enhanced auditors report will not only
help respond to investor demands, but presents a huge
opportunity to increase public confidence in financial
reporting and governance as users of financial statements
gain a better understanding of the process followed by the
auditor in arriving at the audit opinion. This will contribute
to the ongoing relevance of the financial statements audit
and help serve the public interest. Stakeholders therefore
need to support the initiatives to enhance the auditors
report for a full benefit of these opportunities.

For more information, please contact:

Tola Adeyemi
E: tola.adeyemi@ng.kpmg.com
Interact with us on social media:

KPMG Nigeria

Chibuzor Anyanechi
E: chibuzor.anyanechi@ng.kpmg.com
@ KPMG_Nigeria

KPMG_Nigeria

Goodluck Obi
E: goodluck.obi@ng.kpmg.com

Kabir Okunlola
E: kabir.okunlola@ng.kpmg.com
kpmg.com/ng

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