The format of the new auditor’s report includes prominent placement of the audit opinion first followed by the basis of opinion paragraph. There is flexibility in the order of the remaining sections of the auditor’s report. The ISAs [NZ] provide guidance on the order with the overall principle being to give prominence to the matters of most importance. The order of content in ISA [NZ] 700 [Revised] Forming an Opinion and Reporting on Financial Statements and the illustrative auditor’s reports are structured to achieve this, and it is advisable that this order is followed. Refer to the question 'When are the changes effective?' for further details.
Auditor’s opinion
The first section of the auditor’s report is required to include the auditor’s opinion and shall have the heading “Opinion”. The auditor may identify the page numbers on which the audited financial statements are presented, but is not required to do so.
The ISAs [NZ] require that the auditor identify the applicable financial reporting framework. Where the applicable financial reporting framework is not IFRS or IPSAS, the auditor is required to identify the jurisdiction of origin. E.g., “in accordance with Public Benefit Entity Standards issued by the New Zealand Accounting Standards Board.”
The audit opinion must identify the applicable financial reporting requirements, and the form of opinion will differ depending on whether the framework is a fair presentation framework or a compliance framework.
Key Audit Matters [KAMs]
- Auditors of listed issuers, and from December 2018 all other FMC reporting entities considered to have a higher level of public accountability, will include information in respect of those matters which in their judgement, were of most significance in the audit of the financial statements in the current year.
- Auditors of other entities can elect to include KAMs but are not required to do so.
Refer to the Key Audit Matters section.
Other information
More detail is provided on the directors’ and auditor’s responsibilities in respect to other information, and on the status of the auditor’s consideration of other information, at the date of the auditor’s report. Other information is financial and non-financial information included in the annual report [excluding the financial statements and auditor’s report thereon]. This is included in the auditor’s report under a heading ‘Other Information’ or other appropriate heading. The reporting requirements differ according to the type of entity and what information has been received at the date of the auditor’s report.
Refer to the Other Information section.
Responsibilities of those charged with governance
The auditor’s report includes a section with a heading “Responsibilities of those charged with governance”. The report must use the term that is appropriate in the context of the legal framework for the entity. The appropriate reference is usually to those charged with governance, but in some circumstances, may be to management.
In New Zealand, the statutory [and direct legal] responsibility for ensuring financial statements are prepared has shifted from the directors to the company or FMC reporting entity. The directors [or those charged with governance] continue to have responsibility [albeit not as a matter of express legal duty relating to the approval of financial statements] for ensuring that compliant financial statements are prepared in respect of an entity. The illustrative auditors’ reports have been amended to clarify the statements in respect of responsibilities, following the legislative change, by adding the words “on behalf of the entity”. While it is not the role of the auditing standards or the auditor’s report to explain the legal responsibilities of those charged with governance in New Zealand, such clarification reduces the risk that users of the report may imply that those charged with governance are under a legal duty to prepare financial statements. Further explanation for the clarifications made can be found in the Explanations for Decisions made.
There are additional details on the responsibility of those charged with governance for assessing whether the use of the going concern basis of accounting is appropriate, and whether any relevant disclosures are adequate. These responsibilities are not new, but are now described in the auditor’s report.
Auditor’s responsibilities
The auditor’s responsibilities section has been expanded to provide more information about the key features of an audit.
This section is no longer ‘boiler plate’ across all audits and is amended depending on whether:
- the entity is a single entity or a group;
- the entity is a FMC reporting entity considered to have a higher level of public accountability or not;
- the auditor is communicating KAMs;
- the entity uses a fair presentation or compliance framework to prepare the financial statements;
- the audit is a group audit;
- the auditor is issuing a qualified opinion.
New options are now available to present parts of the auditor’s responsibility section:
- within the body of the auditor’s report [as is current practice];
- within an appendix to the auditor’s report with a reference in the auditor’s report to the appendix;
- with reference to the XRB website by including a reference to the Auditor’s Report page.
Should the auditor use the option to refer to the XRB website rather than include the description within the auditor’s report, the auditor’s report should refer to the correct webpage, as there are several options [currently 8] describing the auditor’s responsibilities which differ depending on the engagement circumstances, determined by whether the report is in respect of a FMC reporting entity considered to have a higher level of public accountability, whether KAM is reported, whether it is an audit of a group or a single entity, etc.
The XRB website is the only website in New Zealand to which reference can be made.
At this stage, if the audit covers both financial information and the service performance information, there is no option to refer to the XRB website.
Going concern
There is an expanded description of the responsibilities of those charged with governance and the auditor in relation to going concern which is mandatory for all auditor’s reports. These responsibilities are not new, but are now included for the first time in the auditor’s report.
If there are events or conditions that cast significant doubt on an entity’s ability to continue as a going concern, there are changes to the way this is reported:
- If the auditor concludes that a material uncertainty exists and disclosure within the financial statements is adequate, the auditor expresses an unmodified opinion and the auditor’s report includes a separate section headed ‘Material Uncertainty Related to Going Concern’ instead of the previous ‘Emphasis of Matter’ paragraph. Where the auditor is reporting KAM, while such a material uncertainty is by its nature a KAM, it is not described in the KAM section.
- If the auditor concludes a material uncertainty does not exist and there is adequate disclosure in the financial statements, in the case where the auditor is reporting KAM, this is likely to be reported as a KAM as it is likely that it was a matter of most significance to the audit. This is often referred to as a ‘close call’ situation. If the auditor is not communicating KAMs, the matter is not reported in the auditor’s report.
Refer to the question 'What has changed in relation to ‘Going Concern’?' for further details on going concern.