Audit reporting began a remarkable journey in 2013. That year the long-form report was introduced. Suddenly shareholders were provided with insight about how the auditor had arrived at his opinion. As auditors, suddenly we were communicating with our ultimate client – the company’s shareholders. We were immediate enthusiasts.
Innovation took off. We field-tested reports with more insight about how we arrived at our opinion: graduated findings – how cautious or optimistic estimates were. For 2014 we rolled that out as an open offer to companies, and we saw other firms include binary findings. In 2015 we have included audit planning “risk maps” in some reports, explaining the wider picture of audit risks.
This journey prompts two questions. First, for any individual company, which step or stop along this journey, which we explore in our publication, do you want to reach? At KPMG we do not insist on going beyond what is required by FRC standards, but we suggest that companies actively consider and talk to their shareholders about where they should be – which of our steps you want to reach. Whatever a company decides, we are happy to take our reporting to its shareholders up to that level. We recognise, of course, that not everyone wants or needs to be in the vanguard of change, and we respect companies’ views, and we ask that others do too.
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The second question is this: in the near future, for public interest companies, what step will regulation require audit reporting to reach? EU audit reform, taking effect later this year, may require more than the basic long-form report. So there needs to be a debate and consensus about whether and how much further it goes. Both the investment community and corporates have a strong interest in the outcome.
What's your view?