Purpose Of The External Audit Report Accounting Essay

intend Of The External visit Report Accounting testThis assignment is pass to allow a password on the erudition of the impertinent size up report, an explanation how and why wording in the impertinent analyze report has evolved, as well as an explanation and discussion on the IAASBs objects and a comment on possible future developments.Purpose of the international audit reportWhen dealing with the purpose of the external audit report it comes down to who is being asked the question as in that respect ar many perceptions as to what bargonly the purpose actually is. The Institute of undertake Accountants in Australia believe The objective of the financial statement audit is to conduce credibility to managements financial statements. (The Institute of Chartered Accountants in Australia 2008). They in any lawsuit go on to say how an audit allows assorted user groups to feel to a great extent confident in an entitys financial statements because at that place is re asonable assurance that a true and fair view is present. (The Institute of Chartered Accountants in Australia 2008) yet most users of accounts see things otherwise Others felt that the meeter should non only if interpret an audit sound judgement, but in any case interpret the financial statements in much(prenominal) a manner that the user could evaluate whether to invest in the entity (McEnroe Martens, 2001 347). Looking at things from yet another angle the law also has an opinion on the purpose of auditors and audit reports, in the famous case of Kingston Cotton manufactorys Co. (1896) Lord Justice Lopez stated An auditor is not bound to be a detective, or, as was said to preliminary his work with suspicion, or with a foregone conclusion that there is something wrong. He is a watchdog, not a bloodhound. (Court of Appeal 1896) Basically meaning the audit report can never be guaranteed to develop zero errors. To tell things a just definition that probably would be accep ted by a majority of parties is that the purpose of an external audit report is to let out an opinion as to whether or not the teaching presented in the financial statements reflects the financial position of an organisation at a particular date, thereby providing reasonable assurance of a true and fair view. However assorted users pull up stakes most likely al ship demeanor perceive the purpose reasonably differently to each other, removing the expectations gap is easier said than done. Public accounting professions will fetch to react and evolve fast enough to keep up to pace with the changing business and social environment to completely come about the gap. (Sherer Turley, 1997)How and why the wording in the external audit report has evolved sensation reason as to why the wording of external audit reports evolved was the event that terminology in the reports was not always interpreted the same way, be audit reports are misunderstood by many readers (Bailey, Bylinski Sh ields, 1983 355)(McEnroe Martens, 2001 348)The table in a higher place shows how the phrase present fairly was perceived in different ways not only by investors but also by auditors themselves. Although there were proposals to have this phrase removed from the audit report strong underground from the financial community meant it was never enacted. Terminology being interpreted differently led to an information gap and to counter this as well as enhance overall communication between auditors and financial statement users, the Cohen direction and Treadway commission do many recommendations. One proposal which was successful and farting to a change was the addition of a paragraph explaining the scope of the audit (PCAOB 2011).Another reason for change is the planned global harmonisation of standards. With the ASB and IAASB intend on converging U.S GAAS and the International Standards on auditing there became a sine qua non to provide much eubstance across international borders . (Morris Thomas, 2011) One way to ensure the wording is clearer and easier to understand is the new definitions section, The Definitions section defines any toll or expressions that are being introduced in a standard for the outgrowth time. (Morris Thomas, 2011 2)The wording of the external audit report has evolved because what is being demanded has changed. Users unavoidableness greater clarity along with more(prenominal) transparency because more than ever individuals want a deeper insight in to an audited firms financial statements, which is probably a aftermath of the recent financial crisis which hit the global business world with no clear warnings. (Bussiere Fratzscher 2006) However the difficulty lies in finding cost telling solutions which still enable some form of commonality to maintain consistency internationally.IAASBs proposalsThe IAASB has proposed the inclusion of an Auditor Commentary section. This would befriend users of the statements understand more what exactly the auditor is doing and the processes he carries out to develop an opinion, meaning there whitethorn be a reduction in the expectations gap. However the gossip relies on the auditors judgement on what is most likely to be important, meaning different auditors whitethorn reach different conclusions, which could in turn call for to differences of opinion this may affect the harmonisation of audit reports and comparability. Also the commentary would be provided at the discretion of the auditor, meaning more time and effort would have to go in to each audit but with no special fee, one may question the cost effectiveness. However other entities such as investors may benefit because amplificationd understanding may lead to greater usefulness when it comes to decision making. An alternative could be a linguistic universal section explaining audited financial statements or the audit even though no two audits are exactly alike this approach could still encourage develop b asic understanding and would also ease the auditors tasks. One may expect investors and shareholders would be in favour of the proposal whilst auditors may not be as pleased unless fees also increase proportionally.Another proposal is to assess managements assumptions in a conclusion. A conclusion including the appropriateness of the going concern assumption and whether material uncertainties have been identified may help point out primeval materializations that need to be dealt with, this could in fact prevent future unexpected financial crisis from occurring and may also increase financial statement transparency. However the report should be neither also optimistic or pessimistic. One may also expect a reduction in the information gap. Its fair to say most stakeholders would be in favour of this proposal, apart from managers of course.Also proposed was a statement as to whether any material inconsistencies between the audited financial statements and other information have bee n indentified, this may enhance the report providing a clearer and maybe even a more complete picture of a firm and operations. An issue is that not all future events can be predicted accurately and so a statement about the absence of material uncertainties is not a guarantee, users may misinterpret this which would widen the expectations gap.Prominent placement of the auditors opinion and other entity- particular(prenominal) information along with further suggestions to provide transparency were also proposed. This may help assist when it comes to navigating through complex financial statements and will also help point out specific areas were the auditors effort was focused. A tapered of the information and expectation gap may be the outcome yet one could argue changes to the audit report alone may not be enough and that information outside of statements also has to reform to provide a more meaningful change. A possible alternative could therefrom be to provide authoritative ed ucational material maintained by the IAASB, in a sense helping users navigate through reports more freely although the problem which arises here is a general guide may not be specific enough.Possible future developmentsUsers of financial statements attend to be in agreement that audit reports need to improve and satisfying the fact that the IAASB has sought improvement I am fully supportive of your current initiative (Robert Mednick, 2012), however not all users believe the suggestions made are appropriate we do not agree with the proposals (Roger Harrington, 2012). To summarise some stakeholders believe the proposals given would just lead to a duplication of information provided by managers and that the report would become prone to boilerplate commentary. (WESTWORTH KEMP, 2012) Although they may provide more information to underpin the pass or fail opinion there may be potential for increased audit costs. It may be appropriate to not make some aspects of the improvements mandator y and instead include a voluntary element. Also any going concern commentary should be clear and evident to users so that comments are not interpreted out of context. However a lot of users agreed with the proposed changes and with a fewer minor adjustments believed they would be affective, in general, the suggested improvements are appropriate( ACCA, 2012), so in the go about future one may see the suggestions made put in to effect.ConclusionTo conclude my research suggests that audit reports need to evolve and improve to keep up with the changing business and social environment and the IAASBs proposals are a step in the right direction. Although the suggestions made could have an inverse impact the potential for benefit vastly outweighs this. The proposals target a physique of issues such as transparency and usefulness and have the capability to be operated internationally. However one may be concerned by users interpret comments which would then widen the expectations gap.Wor d count 1541ReferencesJournal ArticleMcEnroe Martens, JEM SCM, 2001. Auditors and Investors Perceptions of the vista Gap. 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