This report focuses on ways to improve communication between auditors and external users via audit report. Problems with current audit report are identified and two alternatives are proposed, which are: • Short-form audit report • Free-form audit report The report also evaluates these two alternatives respectively and concludes that before any change in relevant legislation and social environment, it is feasible for professions to make the report more concise and readable while the introducing of ‘free-form’ report will be excessively challenging.
1.Introduction 2.Methodology 3.Shorten the audit report
3.1. 3.2. A movement backwards Evaluation 3.2.1.Cross-referencing 3.2.2.Other ways to educate the society 3.3. Summary
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4.Free-form audit report
4.1. 4.2. Information that expected by shareholders Evaluation 4.2.1.Confusion caused by the ‘free-form’ 4.2.2.Legal and confidentiality 4.2.3.The feasibility of a free form audit report 4.2.4.Alternatives to gain information 4.3. Summary
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5.Conclusion 6.Reference 7.Appendix
7.1. 7.2. 7.3. 7.4. Appendix I Appendix II Appendix III Appendix Iv
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The current long-form audit report(which is illustrated in appendix I) has been subjected to a growing amounts of criticism. It is indicated in the research conducted by the AQF’s Working Group (AQF Working Group: AQF 2007), that the standardised wording and unduly long report demotivated the financial report users to read the report in detail, instead, the report is treated as a symbol representing a clean bill of health. Also, the beneficiaries invoke that the audit report should be more informative. Information previously was merely reported to the audit committee or directors should also be reported to shareholders. Therefore, it is vital for auditing professions to take steps to make auditors’ reports less standardised and more informative.
Relevant documents such as the Company Act 2006 and the report of AQF and the report of Porter and Gowthorpe are reviewed and evaluated.
3.Shorten the audit report
3.1.A movement backwards
The audit report has been expanded since 1993 in order to explain to the report users what the auditors’ responsibilities are and what is impossible for auditors to meet. However, the additional paragraphs did not appear to achieve their desired success. Reflected by the research done by Porter and Gowthorpe (Porter & Gowthorpe, 2004), there is still a striking ‘knowledge gap’ regarding auditor’s current duties between professions and users and this gap is specifically extensive among non-financial community audit beneficiaries. Consequently, the audit report seems not necessary an appropriate tool for education. The current report, indeed, is comprised by identical, overly standardised words which ‘excludes shareholders from what they perceive to be the ‘real’ finding of the audit.’ (AQF Working Group: AQF 2007) To encourage users to read the audit report and to acquire better understanding on the context and meaning of the auditors’ opinion, it is essential to make the audit report more concise and precise. Referring to Appendix II, the audit report before expansion is more straightforward and understandable. It marginally states the opinion of the auditors on the financial statement: the truth and fairness of the financial statement and the compliance with the applicable standards and regulations. It facilitated users to easily find the information they mostly concerned about. 4
Although a shorter report is more understandable, it remains to be a problem that a shortform report could be misinterpreted. (Roth, 1968) If a short-form report is re-adopted, there must to be somewhere else to clarify what auditors can and cannot do. In addition, extra paragraphs should be contained in the audit report reasulting from the development of legislations. Illustrated in...
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