Audit Reports and Auditor Transparency
The audit report communicates the auditor’s opinion on the audited financial statements to investors. The report is a key output of the audit process and the only observable part of that process by investors.
Before 2017, audit reports were "boilerplate,” pass/fail judgments that were virtually identical from company to company. Reforms since then, supported by CFA Institute, have augmented the audit report with disclosures of company- and engagement-specific information such as key/critical audit matters, the name of the audit partner that led the engagement, auditor tenure, and use of affiliated firms.
Reforms of the audit report have not been universally adopted by all jurisdictions nor have they been universally successful as they face fierce opposition. For example, in the United States, the quantity of critical audit matters discussed by auditors in their reports have fallen short of expectations and the disclosure of the engagement partner in the audit report was rejected by the Public Company Accounting Oversight Board.
For the benefit of investors, we continue to advocate for more informative auditor reports and greater auditor transparency across jurisdictions.
Investors rely on auditors for their independent opinion, which are shaped by auditors’ expertise and privileged access to management and information. Shareholders, as owners of corporations, compensate auditors and bear the risks of materially misstated financial information. Additionally, shareholders are often asked to ratify audit committees’ selection of independent auditors. More informative audit reports and greater auditor transparency enables the effective evaluation of auditors and improves investors’ confidence in the quality of the audited financial statements.