The Investment Management Association (IMA) welcomes the proposals put forward by the International Auditing and Assurance Standards Board (IAASB) on auditor's reports, which address the need to make them more relevant and useful for investors.
Liz Murrall, IMA Director of Corporate Governance and Reporting, said:
"IMA members are major investors - on behalf of retail and institutional clients - in companies that trade on regulated markets. Therefore our industry has a real interest in the requirements governing the audits of these companies' accounts and the auditor's report.
"Currently investors are concerned about the quality of audits and feel excluded from the process and real findings, such as the evaluation of risk and controls. They would value a more far-reaching audit report and we therefore welcome the opportunity to comment on the IAASB's paper."
In its response, the IMA says that the audit report is the only communication investors have with the auditor but currently it has limited benefits, containing a binary opinion and technical language.
A particular concern is the opaque nature in which accounts are prepared and audited. The IMA agrees that there should be a holistic approach to corporate reporting which needs to involve the company's board, audit committee and auditor. However it recognises that there are no international standards on the responsibilities of the auditor committee and supports the enhanced disclosure guidelines for boards and/or audit committees developed by the Global Auditor Investor Dialogue*.
The IMA also supports IAASB's idea of having an ‘Auditor's Commentary' section in the report to provide more insight to users. This will help investors' confidence in the auditor's work and trigger questions which need to be posed to management.
However, investors want more assurance from the auditor on the going concern assessment - the underlying assumption in the preparation of the financial statements that the business is not about to go broke. Auditors should state any doubts over the company's ability to continue as a going concern, regardless of whether the information has been disclosed by management.
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