Arguments for expanding the information that is included in the auditor’s report.
The current auditor’s report model provides information as to when audits on financial statements were conducted, the audit’s nature, and auditor’s opinions regarding the financial leverage of a business. This is in conformity with the existing financial reporting standards of accounting. However, the framework has been criticized on laxity or insufficient financial information that business stakeholders may require in making informed investment decisions. Under this framework investors lack details and access to the sources of such information as auditors provide details of what they deem useful to them in disseminating financial information. The implication is that useful information that the stakeholders may need is left out under the current framework.
The information provided by auditors need to be expanded to fit the interests of all stakeholders. Investors depend on these reports in making decisions on business relationships. The auditor’s reports provide a general view of the financial status of a business without provisions on sources of this information. They only disseminate what they feel plays part in coming up with their conclusions about business operations. However, investors require detailed knowhow of a business sources, detailed information on expenditures, and of importance the future expectations of the business.
Requiring that auditor’s communicate all details of audit will allow investors to focus on a business’s financial statements. Such requirements will enhance the knowledge to investors and other users of financial statements on past information about a business. This will add on their process of decision making as it will enable a scrutiny of the business’s accounts.
The report also requires auditors to provide information that may not necessarily be included in the financial statements, but is crucial for investors. The assurance of a business’s information reported outside of financial statements would improve on quality , reliability and completeness of information. Additionally, the use of explanatory language will assist in understanding how auditors form their opinions.
Arguments against expanding the information that is included in the auditor’s report
Expanding the information on auditor’s report may make auditing obsolete in business as most of the information that they use in forming opinions is disclosed in the statement. The information left out in these reports is considered irrelevant as it is more useful internally that externally.
Communicating some information may also expose business operations to its competitors who might even pose as investors. For instance, salaries and bonus that motivate employees in an organization may serve as a platform of competitors wooing the employees. In addition, the proposed reporting standard requires auditors to include statements regarding their independence in disseminating the reports. This makes it personal as auditors have accounts regulations that they should withhold while in line of their duties.
While using these standards, auditors will experience challenges of information collection, for example, time factor, which may lead to lack of reliability of the statements. It will also be cost inefficient as the auditors have to search for past data in order to base their current findings relative to historical information. In addition, the proposed reporting standards impose new audit performance measures other than documentation, determination, and communication, which make auditing a risky venture.
Reports based on PCAOB standards are subject to subjectivity. Under normal circumstances a auditor opinions should be objective, and based on evidence rather than being driven by external interests. The new provisions involve auditors evaluating materials for misstatements and inconsistencies. This challenges the provision’s efforts of increasing the quality of available information that investors need. It may also compromise on the confidence of decisions reached due to the wide scope of the information.
Adding extra information for investors implies having auditors for longer than may be stipulated by an organization’s procedures. This means that organizations will incur extra costs that interfere with the set targets and objectives. Additionally, if the management fails to revise the auditor’s responses, in cases of inconsistencies, the standard of information may vary between the auditor and investors.
Personal opinions on the proposed changes to the audit report.
If well implemented, the proposed changes may improve on auditing, and accounting reporting standards in general. Laying down the extent of information that auditor’s should provide to investors will assist prevent fraud in financial departments as the auditors will ensure disclosure of all processes. It will also act as a motivation strategy not only to the accounts departments, but to all related departments in efforts to boost the company’s image to the public. However, the scope of the information should be limited to vetted interested parties so that business rivals do not use the information for their advantage. Consequently, information should be based on the evidence not subjected by the interests of the stakeholders or for the sake of meeting the prerequisites of accounting standards.
Additional information that auditors should include in the audit report.
Auditors should include information on the criterion they apply in measuring the suitability of information to investors. They should also specify the importance of this information to different stakeholders so that every stakeholder receives relevance of the reports. Critical audit matters should also be defined so that auditors do not conclude that a matter is critical while the stakeholders think otherwise.
