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Overview of this Position Paper

The auditors report is the instrument addressing the output of the audit
process; likewise, serving as the primary means of communication with an
entitys stakeholders. It is a short, standardized report that describes the
financial statements subject to audit, the audit itself, and the respective
responsibilities of management and the auditor.
For many years now, the auditors report has provided either a clean
(unmodified) or modified opinion with an explanation of the basis for such.
This long-standing report remains to be valuable; however, many believe
that this is no longer sufficient. Users of audited financial statements are
calling for more pertinent information for their decision-making. Moreover,
global financial crisis has urged the users, particularly the investors, to want
to know more about individual audits and to gain further insights into the
audited entity and as to how it is performing.
The International Auditing and Assurance Standards Board (IAASB)
embraced this need for change and released an exposure draft entitled
Reporting on Audited Financial Statements: Proposed New and Revised
International Standards on Auditing (ISAs) on July 25, 2013. The ED proposes
amendments to audit reports including the provision of more information on
how audits are performed. Along with the other revisions is the introduction
of a key audit matters section in the audit report on audits of listed entities

which were developed after an earlier research. These aim to include audit
findings and insights which are expected to enhance the auditors reports
and contribute to the ongoing relevance of the financial statement audit and
the public interest.
Numerous organizations have responded positively to these proposals and
international firms even field tested the new audit report model which
equally gained affirmative results. In addition, with the encouraging feedback
gained, it is likely that these proposed enhanced auditor report models are
months away from becoming an established international standard.
The adoption and application of this in the Philippines would then be
reasonable and without prejudice to the interest of the users of audited
financial statements, particularly the investors and stockholders, the entity
owners, and other interested parties. In the same positive manner, auditor
reports would be of greater value with the inclusion of the key audit
matters without encroachment of any ethical standards. Moreover, the
value of auditors would be a notch higher for these additional requirements,
in a way, would improve their competence, credibility, and professionalism,









accountancy profession.
The main objective of this paper is to justify the reasonableness of the
application of this proposal not only internationally but most of all, on a local
perspective, i.e., its adoption and application in the Philippines.


Summaries of Issues and Recommendations

The proposal for the proposed new auditing standard comes not without
any impediments. A table is provided below to sum up these issues with
corresponding recommendations.
KAMS will expose

The auditor has the

The reporting of the

confidential matters

responsibility of

proposed KAM section

of an entity.

communicating matters of

should be done on a

audit significance to TCWG.

voluntary basis with the

Since KAMs are to be taken

discretion of such left to

from the matters

the management and

communicated, the section

TCWG to be able to

may expose confidential

obtain consent on the

KAMS violate ethical

matters of the entity.

said disclosure.
As mentioned, reporting this Leaving the reporting


section will expose

choice on the


confidential matters about

management will enable


the entity.

the auditor to obtain

consent on such

disclosure and will not

cause any violation
thereof. The Code of
Ethics provides that
confidentiality will not
be dishonored as long
as there is consent,
juridical necessity to
and professional right to
KAMS may result to

With KAM section, the

The auditor should

financial disclosure/

standard auditor report will

thoroughly review his


likely be lengthier, may

findings and carefully


misguide the reader in

select those which are

where to start reading and

of greater importance to

on what to focus and cause

be included in the

information overload.

report. He should
likewise include hints
and signs which to
catch the readers
attention for them to be
able to focus on
significant areas in the
report. Guidance in

selecting KAMs is also

provided in the
KAMS are

Proposed standard on KAM

proposed standard.
The underlying concept


has been built on the

between these

because of existing

concept of PSA 706,

standards may be the

PSA 706 (ISA 706)

therefore a commonality

same; however the

between them is observed.

differences between
them should be
considered. With
thorough examination,
the proposed section
provides a lower
threshold of
communicating audit
findings and is of

KAMS will become

An accompanying feature of

greater assistance.
This issue should not be

the new

the proposed standard is to

viewed much as an


avoid audit reports from

impediment because

being standardized. With

reporting the same

the same matters and audit

audit in consecutive

findings likely to be

years simply reveals

reported in consecutive

how the entity is dealing

years, audit reports

with them.

adopting the use of KAM

section are perceived to
become standardized
KAMS will substitute

Users may take key audit

This issue should be

the auditors opinion matters as equivalent to the

treated with proper

in the FS.

auditors opinion and

communication to the

neglect comprehending on

users and readers of the

the relevant information in

auditors report to not

the report.

create confusion as to
the auditors opinion.


This position paper is made possible with the assistance and support of

my parents Mr. and Mrs. Uldarico M. Rosaupan.

To be God be the Glory.