THE Public Accountants and Auditors’ Board (PAAB), which regulates local accountants and auditors, has instructed all registered auditors to conduct dry runs for new reporting standards expected to becoming effective in December, the Financial Gazette’s Companies & Markets (C&M) can reveal.
Industry players said the move was meant to ensure that local auditors were on track to implement the new rules ahead of the deadline.
Although the new rules, which were introduced by the International Auditing and Assurance Standard Board (IAASB), will only affect companies listed on the stock exchange, Zimbabwe has added audits on all banking institutions, insurance and assurance companies and any audit done on behalf of the Comptroller and Auditor General. These include all State entities which are funded by taxpayers.
The new auditor’s report is expected to enhance value to users such as potential investors, shareholders, regulators and analysts.
There will be greater transparency, which might help attract increased and much needed foreign direct investment into the country.
PAAB initially pushed for early adoption but stakeholders indicated that they were not ready to implement the new rules.
Now, PAAB has called for the dry runs.
Speaking to C&M on the sidelines of a Chartered Accountant of Zimbabwe (ICAZ) seminar held in the capital last week, Ester Antonio, a partner at PricewaterhouseCoopers (PWC), confirmed the development.
Antonio said dry run reports would be available to regulators of audited entities on request. For example, for banks, these would be available to the Reserve Bank of Zimbabwe.
“As we are in the process of wrapping up our audits, we are doing a dry run just to practice and use it as an internal training mechanism,” said Antonio, who is also ICAZ Auditing and Professional Standards Committee member.
She added: “We also have a third eye technical review.”
A partner at BDO Zimbabwe, Martin Makaya, who is also the junior vice president of ICAZ, also confirmed the development. He, however, highlighted several challenges that have been met so far.
“The dry run is moving on well but not without challenges” said Makaya.
“It’s like when you are travelling through a new road and suddenly come to a sharp turn. What do you do?” he asked.
“You may want to engage in some low or high gears depending on the situation. Therefore, the dry run is meant to take us through the new road before actual implementation which is very good for our market. At a point the long form report becomes mandatory, accounting firms would have had training and therefore good to go”.
Makaya added: “The key challenge that auditors are grappling with is that entities are putting in things into key audit matters (KAMs) section when they are supposed to be audit qualifications.
“The other problem is that dry run reports will not be available for public scrutiny hence may not be meeting the basic requirements. The dry run audit reports will just end with presenting the report to the audit committee and end up in your drawer. Remember, these may be surrendered to the regulator on request.
“For public companies, during this period, we cannot take dry runs to the public. Naturally, taking these reports into the public domain will force you to do the right things. It forces you to apply the standard correctly.
“The other issue is that, in Zimbabwe the requirement at the moment is that we disclose in the media the audit opinion but it’s not clear in the Zimbabwean situation or even internationally whether those key KAMs, on publication of results, should be disclosed. Jurisdictions, I believe would need to come up with the way forward.”
One most significant change to be introduced is the disclosure of the preparer of the financial statements and the individual registered public auditor’s full name and PAAB practicing number on all audits.
By doing so, the auditor responsible will be left exposed if there is professional negligence in certain aspects of the audit, which would give rise to erroneous or misleading financial statements which might lead to corporate collapse.
As a result, the auditor would always want to avoid professional negligence which might damage his or her reputation and the name of the auditing firm.
Once the new rules start being implemented, the market would start judging the auditor, a situation which would force the auditors and chief preparers to be more diligent as they would take full responsibility.
While management is responsible for recording the results and position of the business through financial statements, it is the auditor who expresses opinion on whether financial statements have been fairly presented.
The auditor ensures that there is adherence to accounting standards in the preparation and presentation of financial statements.
Auditors are also expected to provide early warning regarding the possibility of a corporate collapse.
This enhances the level of confidence by users of financial statements.
Another significant change is the introduction of KAMs, which are meant to flag areas of significant audit judgment and how such matters are resolved.
These would be selected from those matters that required significant auditor’s attention during an audit.
Selecting these would require professional judgement in order to determine which or how many key audit matters to include in the audit report.
In identifying the KAMs, the auditor must consider areas of higher, assessed risks of material misstatement or significant risks identified during the audit.
When describing a KAM, the auditor must include items such as why the matter was considered to be a KAM, how it was addressed in the audit and a reference to a related financial statement disclosure, if any.
Going concern would also be given more visibility in the auditor’s report. Both management and auditors’ responsibilities regarding going concern would be described in the new reports.
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