Abstract
Historically, the independent audit profession faces a relevant challenge relating to the close of the users’ expectation gap of its report on the financial statements of companies. Throughout the years, studies of this matter were made to identify main causes. As a result, a new standard on the independent auditors’ report was internationally approved, which is applicable for financial statements of listed companies for the year ended on or after December 15, 2016 (for Brazilian listed entities, December 31st, as locally regulated). Among the main changes innovating the new independent audit report aiming to close the users’ expectation gap are: the reorganization of the paragraphs of the auditor report to reflect the importance of the subjects; the confirmation by the auditor of his independence in relation to the company he is auditing; material uncertainty related to the entity´s ability to continue operating (going concern concept) described in a specific section; the inclusion of a new paragraph for listed; companies detailing key audit matters (KAM) found during the audit (disclosure is optional for other companies); new section on other information that accompany the financial statements (for example management report) and the results of the audit procedures applied to it; the evaluation of management of its responsibility relating to the capacity of the company to continue in operation (going concern concept); a more comprehensive description of auditor’s responsibilities, including with respect to going concern. These changes compose the reply of the audit profession to close the user´s expectation gap in relation to the new auditor report. The one relating to the inclusion of the new paragraph detailing key audit matters identified during the audit process is key to respond to the users of the audit report and give them additional information for his sensitivity market investment analysis and decision making process.
Highlights
For many years, the value of the independent auditors’ report to the society has been questioned
This study aims to address what is known as “users’ expectation gap” or “expectation-performance gap” and how the new auditor report is addressing this issue
With the establishment of the aforementioned broad process of studies and researches, which resulted in changes in certain existing audit standards, and the creation of new ones, important benefits are expected to arise from the new independent auditor’s report
Summary
The value of the independent auditors’ report to the society has been questioned This questioning arises due to the fact that, despite the audit work of the independent auditors, the user of such report does not perceive it as a reliable source of information as many corporate scandals have arisen in the capital market. For Brazilian listed companies this new report is applicable to financial statements ending on or after December 31st 2016, as locally regulated and in accordance with the Brazilian Federal Accounting Council, that approved the Brazilian Accounting Standard – NBC TA700, of June 17, 2016 Such regulation addresses the formation of an audit opinion and the issuance of the independent auditor’s report on the financial statements of listed Brazilian companies. Listed companies are those entities that have shares, quotas or other securities quoted or listed in a stock exchange, or traded according to the regulations of a recognized stock exchange or another equivalent body
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