Question 1: What would be the new format of Audit Report?
Answer: The Committee of the ICAP has prepared formats in line with requirements of the revised and new auditor reporting standards and the relevant laws. Such formats are under consideration and will be issued by the relevant regulator after carrying out due process. It is expected that the formats will be issued before the applicable dates which have been mentioned in the auditor reporting standards.
Question 2:Will this report automatically replace current statutory report format i.e. Form 35-A ?
Answer: No, current format will remain effective till SECP notifies revised Form 35 A format.
Question 3: Has the audit report been changed?
Answer: Yes, with the revision of ISA 700, Audit report has been changed. The changes are effective for audits of financial statements for periods ending on or after December 15, 2016. ICAP is in consultation with SECP to revise Form 35A, 35B and 35C in order to align Auditor’s Reports formats with the revised ISA 700.
Question 4: While incorporating Key Audit Matters, are we required to give the our responses to those issues which have been identified as key audit matters or just the significant issues need to be included?
Answer: Key audit matters are those matters that, in the auditor’s judgment, were of most significance in the audit of the current-period financial statements. The new ISA 701 requires the auditor to describe each KAM include:
- a reference to related financial statement disclosures;
- address why the matter was considered to be one of most significance in the audit; and
- how it was addressed in the audit.
Question 5: When we will get format of new report?
Answer: The ICAP is in consultation with the SECP to revise Forms 35A, 35B and 35C in order to align them with requirements of the revised auditor reporting standards and the local laws and it is expected that the SECP will notify the revised formats soon before the applicable dates which have been mentioned in the auditor reporting standards.
Question 6:Will the new audit report be tested in CAF 9 examination?
Question 7:Changed audit report will it be tested in the Sep 2016 attempt ?
Answer 6 & 7: Please refer to the official guidance for exam related matters: http://www.icap.org.pk/students/study-resources/syllabus/
Question 8:When and where will be the seminar conducted?
Answer: Awareness seminars on New Auditor’s Report model have already been conducted in Karachi, Lahore and Islamabad. You may get the seminar’s presentation from the following website link: http://www.icap.org.pk/cpd/schedule-of-events/
Question 9: Will this change apply to all companies irrespective of size? What format we can use for a small size company? When we can have suggested format as we are planning to finalise few small size audits by end of July 2016? Will this change apply to audit of NGOs as well?
Answer: New format will be applicable for all companies except communication of Key Audit Matters (KAM) which is required for audits of financial statements of listed entities. Law or regulation may also require communication of KAM for audits of entities other than listed entities, such as “public interest entities”, or for public sector entities. Further, companies other than listed entities can voluntarily ask their auditors to present KAM in audit reports.
The ICAP is in consultation with the SECP to revise Forms 35A, 35B and 35C in order to align them with requirements of the revised auditor reporting standards and the local laws and it is expected that the SECP will notify the revised formats soon before the applicable dates which have been mentioned in the auditor reporting standards.
Yes – the above changes will be applicable for those NGOs which are registered under the Companies Ordinance, 1984. For other NGOs requirements as given in ATR 17 (2015) will be followed.
Question 10:Is there any change with respect to going concern assessment and other information in the annual report?
Answer: A. Following changes have been made in an auditor’s report relating to going concern depending on the facts and circumstances of the entity:
- Explicit description of the respective responsibilities of management and auditor on Going Concern in all auditors report.
- Separate section is required on Going Concern when material uncertainty exists with heading a “Material Uncertainty Related to Going Concern”. When material uncertainty related to Going Concern exists, it is by nature Key Audit Matters (KAM), but it is reported separately in “Material Uncertainty Related to Going Concern” section of the auditor’s report.
- Events or conditions were identified that may cast significant doubt on the entity’s ability to continue as a going concern but, after considering management’s plans to deal with these events or conditions, management and the auditor conclude that no material uncertainty exists (i.e., “close call” situations). Auditor are required to evaluate the adequacy of disclosures in “close call” situations in view of the requirements of the applicable financial reporting framework. Matters relating to going concern, including “close calls”, may be determined to be Key Audit Matters and communicated in the auditor’s report in accordance with new ISA 701, which is required to be applied for audits of listed entities’ financial statements.
B. ISA 720 (Revised) applies to “Other Information” which is financial or non financial information (other than financial statements and the auditor’s report thereon) included in annual report. Under the heading “Other Information (OI)”, the auditor’s report will mainly include:
- A statement of management’s responsibility for the OI.
- Identification of the OI obtained prior to the date of the auditor’s report. In the case of a listed entity, the auditor is also required to identify any OI expected to be obtained after the date of the auditor’s report as auditor will be required to review such information.
- A statement that the auditor’s opinion does not cover the OI and, accordingly, auditor does not (or will not) express an audit opinion or any form of assurance conclusion thereon.
- A description of the auditor’s responsibilities relating to reading, considering and reporting on OI as required by revised ISA.
- When OI has been obtained prior to the date of the auditor’s report, either :
- A statement that the auditor has nothing to report; or
- If the auditor has concluded that there is incorrect material misstatement in OI, a statement in the auditor report.
- Auditor also needs to consider the impact of any qualification on the financial statements on the Other Information.
Question 11: Will new Audit Report emphasise upon absolute assurance or still previously mentioned reasonable assurance owing to limitations both from audit and internal control of an entity?
Answer: New Auditor’ report under revised ISA 700 requires auditor to obtain only reasonable assurance and not Absolute assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.
Question 12: Will new report produce significant impacts upon previous one in terms of contents or it is just a matter of addition of new points e.g Going Concern assumption and others as Determined by ICAP and SECP?
Answer: Key enhancements in the new auditor’s report are :
Mandatory for audits of financial statements of listed entities, voluntary application for entities other than listed entities:
· New section to communicate key audit matters (KAM). KAM are those matters that, in the auditor’s judgment, were of most significance in the audit of the current-period financial statements.
· Disclosure of the name of the engagement partner, with a “harm’s way” exemption.
For all audits:
· Opinion section required to be presented first, followed by the Basis for Opinion section, unless law or regulation prescribe otherwise.
· Enhanced auditor reporting on going concern (GC), including:
Description of the respective responsibilities of management and the auditor for GC;
. A separate section when a material uncertainty exists, and is adequately disclosed, under the heading “Material Uncertainty Related to Going Concern”;
· New requirement to challenge adequacy of disclosures for “close calls“ in view of the applicable financial reporting framework when events or conditions are identified that may cast significant doubt on an entity’s ability to continue as a GC.
· Affirmative statement about the auditor’s independence and fulfillment 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.
· Enhanced description of the responsibilities of the auditor and key features of an audit.
- Required identification section when TCWG are separate from management.
- Separate section with the heading ‘other information’ is required to be included in the new report (refer revised ISA 720)
Question 13: What will be impact of new audit report upon engagement letters as mutually agreed among auditors and entities?
Answer: Under revised ISA 700 scope and responsibilities of auditor will remain same except to make the additional reference about communication of key audit matters in the auditor’s report in accordance with ISA 701. (refer para A23a of ISA 210)
For details, please refer https://www.ifac.org/publications-resources/conforming-amendments-other-isas
Question 14:The above discussion refers ISA 720 (Revised) but the same is still not included in ISA Adoption Standard where reference to previous version of ISA 720 appears. ISA 720 (Revised)’s reference is also missing under the “New & Revised Standards but not yet Effective” section therein. A clarification in this respect is required.
Answer: All International Standards on Auditing (ISAs), once adopted by the Council of the Institute, are deemed to be adopted whenever they are revised by the International Auditing and Assurance Standards Board (IAASB). Therefore, ISA 720 (revised) is considered to be adopted.
Thank you for intimating us, it will soon be included in the ISAs adoption status.
Question 15: What format of audit report will be used for audit of financial statements of Employee Provident Fund for the periods ending 31 December 2016? What is status of ATR-17 (2015) after IAS 700 (Revised)?
Answer: Please refer ICAP Circular No. 10 dated December 26, 2016 on ‘Clarification about Auditor’s Report on Financial Statements’ which clarifies that auditor’s report on audit of financial statements of entities other than those specified in the said circular and where auditor’s report is not prescribed under the law, be issued in accordance with the requirements of the revised and new auditors reporting standards. Therefore, audit report of Employee Provident Fund will be in accordance with the revised ISA 700.
Regarding ATR 17, it is currently being revised in accordance the with revised IAS 700 and is under consideration with the appropriate committee of the Institute.