The art of conversation: the extended audit report

View the 2020 PD Leake lecture, given by Dr Miguel Minutti-Meza, Miami Herbert Business School, with a response from Allister Wilson, Assurance Partner at EY.

In the wake of the 2008 financial crisis, concerns about the quality of communication with investors led to significant changes in the content and structure of audit reports.

In 2013 the UK’s corporate governance regime was updated with the issue of a revised auditing standard enhancing the transparency of the auditor’s report. This aimed to provide more insightful information to the users of financial statements. The UK experience paved the way for changes to be applied on a global scale with the IAASB implementing ISA 701 Key Audit Matters in 2016 and the US following in 2017 with AS 3101 Critical Audit Matters.

Drawing on research findings, Dr Minutti-Meza considers what we know and what we can learn from the implementation of the extended audit report, including the reports of companies involved in recent corporate and audit scandals. For example, has the extended audit report been well received by investors? And has the inclusion of ‘key audit matters’ helped to reduce information asymmetries between management and investors?