Auditors overseas may soon face a new requirement to look past the specific information they are auditing to better understand the facts they are checking and assure it all tells a consistent story about the company's financial condition.
The International Auditing and Assurance Standards Board is looking for public comment on its proposal to revise International Standards on Auditing. The proposal would expand the scope and the focus of an auditor's efforts to review information beyond the financial statements, although it would not require auditors to issue audit opinions on such additional information.
IAASB says financial statements contain more narrative and qualitative information than ever before, and users of financial statements are relying on such information more than ever before as they struggle to grasp increasingly complex financial statements. Advocates for integrated business reporting are calling for better integration of financial statements with management discussion and analysis and other pieces of communication. Companies also are relying on more varied methods for delivering information, beyond a printed form mailed to each investor, and they're making more varied use of the documents they are required to produce for regulatory filing purposes, according to IAASB.
All of that prompted IAASB to require auditors to look more comprehensively at the big picture as they assess financial statement assertions. With its proposal, IAASB wants to extend the scope of the standard to include documents accompanying audited financial statements. Standard setters want to require auditors to read the information not only for consistency but also to simply better understand the company's business and financial condition. The proposal also would require auditors to say in their audit reports that they are reviewing such information.
Arnold Schilder, IAASB Chairman, says in a statement that companies increasingly are making disclosures outside of financial statements that investors value, particularly qualitative disclosures. “The public interest question is: is this auditing standard as up-to-date as it needs to be, and does it do enough to ensure that auditors review this other information in the context of their understanding of the audited entity?” he asks.