With only three months to go until the new and revised auditor reporting standards become effective, are you ready to be part of a change that has been dubbed as the most significant and visible change in auditing in recent history? By Willie Botha and Hayley Barker Hoogwerf

In January 2015 the International Auditing and Assurance Standards Board (IAASB) released its suite of new and revised auditor reporting standards, after six years of development.

At the time of their release, Professor Arnold Schilder (chairman of the IAASB) remarked that ‘these changes will reinvigorate the audit, as auditors substantively change their behaviour and how they communicate about their work.’

The aim is that these standards will significantly improve the relevance and value of the auditor’s report for shareholders and investors, and other users of financial statements.

A number of countries that have already been issuing more informative auditor’s report, such as the United Kingdom (UK) and the Netherlands, have seen positive reaction from all parties.

There have also been some instances of early adoption of the IAASB’s auditor reporting standards in South Africa over the past year, with an equally positive reception. We are aware of at least eight companies listed on the JSE (as at June 2016) where their auditors have issued the new format auditor’s report.

The aim of this article is to again alert all SAICA members regarding these important developments, dubbed the most significant and most visible changes in auditing in recent history, and to provide an overview of key resources that are available to assist in understanding and implementing the new and revised auditor reporting standards.


The need for reforms to auditor reporting was identified by the IAASB through various research, information-gathering and outreach activities.

It was clear that the auditor’s opinion on financial statements is valued, but that there were also calls (primarily from investors and analysts) for an auditor’s report that provides more entity-specific and more relevant information, and that is more informative about the audit that has been performed.

Furthermore, the auditor’s report is the means by which the auditor communicates the outcome of the auditing process to the users of financial statements and other stakeholders, and enhanced auditor reporting was identified as key to increasing the perceived value of the financial statement audit. It was essential to respond to the calls for change in the interest of the continued relevance and value of the external audit.

Other benefits envisaged by the IAASB include:

  • Enhanced communications between the auditor and other stakeholders including investors and those charged with governance
  • Increased attention by preparers of financial statements on those disclosures to which reference is made in the auditor’s report, and
  • Renewed focus of the auditor on matters to be reported as this will now be within the public domain


The suite of new and revised auditor reporting standards comprise the following International Standards on Auditing (ISAs), as well as some conforming amendments to a number of other ISAs:

  • ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
  • ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report
  • ISA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report
  • ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
  • ISA 570 (Revised), Going Concern, and
  • ISA 260 (Revised), Communication with Those Charged with Governance

Furthermore, ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information, which complements the changes arising from the above standards, was issued by the IAASB in April 2015. All of these standards are effective for audits of financial statements for periods ending on or after 15 December 2016 (with early adoption being allowed).

The Independent Regulatory Board for Auditors (IRBA) approved for adoption, issue and prescription by Registered Auditors (RAs) in South Africa the above IAASB pronouncements in June 2015 (and ISA 720 (Revised) in September 2015), with the same effective date.

In March 2016, the IRBA’s Committee for Auditing Standards (CFAS) issued the South African Auditing Practice Statement (SAAPS) 3 (Revised November 2015), Illustrative Reports. The aim of SAAPS 3 is to provide practical guidance to RAs in complying with the International Standards and legal and regulatory requirements applicable to auditors and auditor reporting in South Africa; in particular, requirements in terms of the Auditing Profession Act 2005, the Companies Act 2008, and the Public Audit Act 2004. If an RA has decided to early adopt the new and revised auditor reporting and related auditing standards, then the early adoption of SAAPS 3 is also required.


All auditors’ reports issued by all RAs will be affected by the auditor reporting standards concerned. Seven primary changes can be identified:

Those changes applicable to all audits:

  • The report has a new form and layout, including that the auditor’s opinion (that is, the opinion section) is required to be presented first, followed by the Basis for Opinion (and then the other elements of the report).
  • Enhanced auditor reporting on going concern is to be under a separate heading ‘material uncertainties related to going concern’.
  • Reporting on other information will be in a separate section of the auditor’s report (that is, financial or non-financial information other than the financial statements and the auditor’s report thereon included in an entity’s annual report).
  • There will be an affirmative statement about the auditor’s independence and compliance with other ethical requirements.
  • Description of the responsibilities of the auditor will be enhanced.

Those changes that are mandatory for auditor reports of listed entities are:

  • The inclusion of a new section to communicate key audit matters (KAM). KAM are those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial statements of the current period.
  • Disclosure of the name of the engagement partner (although the Code of Professional Conduct for RAs in South Africa stipulates a signing convention that already requires the disclosure of the engagement partner’s name).

It should be noted that the communication of KAM could also be applicable to entities other than listed entities, namely when required by law or regulation, or when the auditor voluntarily elects to communicate KAM. In South Africa (as at June 2016), two regulators have already announced the requirement for auditors to communicate KAM, namely the Council for Medical Schemes and the Registrar of Collective Investment Schemes under the Financial Services Board.


The enhancements to the auditor’s report build on the fundamental underlying concept of the ISAs, being a risk-based approach. The revision of the auditor reporting standards therefore does not change the auditing process but rather increases the transparency about it. Especially in those instances where KAM are communicated, the audit process will be affected from the planning stage throughout, up to drawing conclusions, forming an audit opinion and writing the auditor’ report. It would be important from the outset to have a good anticipation of those matters that may eventually represent KAM and plan the audit accordingly, including discussions with those charged with governance, that will generally be expected to be more frequent, more focused and more robust. Increased involvement in certain areas by more senior members of the audit engagement team, including the audit partner, may also be indicated. The proper formulation of KAM that provide relevant, entity-specific and audit-specific information will require considerable attention, including effective two-way communication between the auditor and those charged with governance.

The ultimate responsibility for the financial statements and the inclusion of relevant information about the entity and its financial performance, including providing adequate disclosures in accordance with the applicable financial reporting framework, remains with management, with the oversight of those charged with governance.

It should be clear that it is not only the auditor that will be affected, but also management, preparers of financial statements, the directors of the company and the audit committee. Ultimately, it is the shareholders, investors and other stakeholders that will be affected by having an auditor’s report available that provides more transparency about important aspects of the audit and that better describes what an audit is and what the auditor does.


As part of SAICA’s activities to maintain and enhance members’ technical competence, various resources are accessible via the Auditor Reporting section on the SAICA Assurance webpage at www.saica.co.za (follow the links ‘Technical’; ‘Assurance’).

Members can access the new and revised auditor reporting and related auditing standards, as well as communications from the IAASB and the IRBA (with links to the relevant websites). In particular, members are encouraged to access and utilise the IAASB Auditor Reporting Toolkit, which includes additional publications to explain various aspects or key topics in the new and revised auditor reporting standards.

SAICA-specific resources that can be accessed include:

•             Recordings and, as applicable, slides presentations of the following events:

    • Joint SAICA/JSE panel discussion: New Auditor’s Report – It is not just going to affect auditors! (March 2015). A panel of experts discusses what chief financial officers of listed companies, audit committees, auditors and investors can expect in terms of the impact of the new auditor’s report.
    • Joint SAICA/IRBA event: New Auditor’s Report – Straight from the horse’s mouth (May 2015). Senior staff from the IAASB, including the IAASB chairman, visited South Africa in May 2015 and facilitated this presentation and discussion session to raise awareness and understanding of the new auditor reporting requirements, including the reasons for the changes and their anticipated impact.
    • SAICA’s interview with early adopters of the new and revised auditor reporting standards in South Africa (September 2015): This interview with the audit engagement partner and the chief financial officer concerned provides valuable insight into the auditor’s and the audit client’s experiences of the process on the path to a new auditor’s report.

•             The following articles on auditor reporting have appeared in Accountancy SA in 2015/2016 (as at June 2016):

    • Overview – new auditor’s report
    • Focus on key audit matters
    • Ins And outs of the new auditor’s report
    • Key audit matters: questions and answers
    • Auditor’s report and financial statement disclosures
    • Audit committee reporting
    • What’s going on with going concern?
    • The effect of the new auditor’s report on smaller entities
    • The renewal of vows: auditor reporting and ethical requirements
    • ISA 720 (Revised): auditor focus on ‘other information’
    • Consistency of information in annual reports: an ISA 720 perspective

In November 2015 SAICA presented a very successful three-hour auditor reporting seminar that focused on the new and revised requirements. Taking into account that the effective date of the standards is ‘around the corner’, we have decided to repeat the auditor reporting seminar in November 2016 to ensure that as many as possible of our members have the opportunity to get to grips with the changes to auditor reporting. The seminar will be updated with relevant developments since 2015 and will include perspectives from some of the early adoptions that have been seen. For the convenience of our members, we will again combine the auditor reporting seminar with the annual SAICA information session, which then provides an efficient full day of CPD. Please visit the SAICA website to book your place (follow the links ‘Training’; ‘Seminars and events’).

AUTHORS |Willie Botha CA(SA),RA is Senior Executive, SAICA Assurance and Practice Division, and Hayley Barker Hoogwerf CA(SA) is Project Director: Assurance at SAICA