New Auditor's Report
Q1. | The new and revised HKSAs on auditor reporting and auditor's responsibilities relating to other information are effective for audits of financial statements for periods ending on or after 15 December 2016. Is early adoption permitted? |
The Institute has published Members' Handbook Update 172 in August 2015 which contains the new and revised HKSAs on auditor reporting and auditor's responsibilities relating to other information.
New and revised standards on auditor's reporting are:
• HKSA 260 (Revised), Communication with Those Charged with Governance
• HKSA 570 (Revised), Going Concern
• HKSA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
• HKSA 701, Communicating Key Audit Matters in the Independent Auditor's Report
• HKSA 705 (Revised), Modifications to the Opinion in the Independent Auditor's Report
Accompanying the release of the new and revised standards on auditor's reporting as set out above are conforming amendments to the following HKSAs:
• HKSA 210, Agreeing the Terms of Audit Engagements
• HKSA 220, Quality Control for an Audit of Financial Statements
• HKSA 230, Audit Documentation
• HKSA 510, Initial Audit Engagements – Opening Balances
• HKSA 580, Written Representations
• HKSA 710, Comparative Information – Corresponding Figures and Comparative Financial Statements
Revised standard on auditor's responsibilities relating to other information:
• HKSA 720 (Revised), The Auditor's Responsibilities Relating to Other Information
Accompanying the release of HKSA 720 (Revised) are conforming amendments to the following HKSAs:
• HKSA 260 (Revised), Communication with Those Charged with Governance
• HKSA 450, Evaluation of Misstatements Identified during the Audit
• HKSA 570 (Revised), Going Concern
• HKSA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
• HKSA 701, Communicating Key Audit Matters in the Independent Auditor's Report
• HKSA 705 (Revised), Modifications to the Opinion in the Independent Auditor's Report
• HKSA 710, Comparative Information – Corresponding Figures and Comparative Financial Statements
• HKSA 810, Engagements to Report on Summary Financial Statements
Early adoption of the standards is permitted, though as a matter of practice, it is not explicitly stated so in the standards.
Paragraph 26 of the Amended Preface to the Hong Kong Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements states that "the scope, effective date and any specific limitation of the applicability of a specific Hong Kong Standard is made clear in the Standard. Unless otherwise stated in the Hong Kong Standard, the member is permitted to apply a Hong Kong Standard before the effective date specified therein."
Given that the Institute has adopted and issued the standards on auditor's reporting and auditor's responsibilities relating to other information in August 2015, the Auditing and Assurance Standards Committee is of the view that all of the above standards should be adopted and implemented as a package. This is to avoid confusion to users if some, but not all, of the new requirements in respect of auditor's reporting and auditor’s responsibilities relating to other information are implemented in the circumstances where there is early adoption. In addition, the revised standards are inter-related with each other and accordingly it would be practically difficult to adopt them on a piecemeal basis.
While many of the new and revised auditor reporting requirements relate solely to reporting, changes to HKSA 570 (Revised), Going Concern, HKSA 720 (Revised), The Auditor's Responsibilities Relating to Other Information and HKSA 260 (Revised), Communication with Those Charged with Governance will also affect auditor performance. Auditors need to allow a reasonable period for implementation preparation (including training and changes to firms' audit methodologies).
Auditors are reminded to discuss the implications of early adoption with their clients.
Q2. | Name of engagement partner included in the auditor's report for audits of complete sets of general purpose financial statements of listed entities. |
In accordance with HKSA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, the name of the engagement partner shall be included in the auditor's report for audits of complete sets of general purpose financial statements of listed entities unless, in rare circumstances, such disclosure is reasonably expected to lead to a significant personal security threat.
The naming of the engagement partner in the auditor's report is intended to provide further transparency to the users of the auditor's report of a complete set of general purpose financial statements of a listed entity.
The name of the engagement partner who signs the audit report shall be included in the auditor's report.
Currently for a corporate practice, the auditor’s report is signed by the engagement partner who is a director of the practice and a professional accountant holding a current practising certificate. The auditor’s report states the name of the corporate practice and the location of its office and is signed in the name of the corporate practice. The auditor’s report also identifies the director responsible for the performance of the audit engagement contemplated by such report, and states his/her full name as appearing in his/her practising certificate and the practising certificate number.
There will be no change to the above practice for a corporate practice when issuing auditor's reports of listed entities under HKSA 700 (Revised).
For a firm, the auditor's report of a listed entity is signed by the engagement partner who must be a professional accountant holding a current practicing certificate. The name of the engagement partner included in the auditor's report is the full name of the engagement partner as appearing in his/her practicing certificate.
It is stated in paragraph 2 of HKSA 701 that the purpose of communicating key audit matters is to enhance the communicative value of the auditor's report by providing greater transparency about the audit that was performed. Communicating key audit matters provides additional information to intended users of the financial statements ("intended users") to assist them in understanding those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period. Communicating key audit matters may also assist intended users in understanding the entity and areas of significant management judgment in the audited financial statements.
In accordance with paragraph 30 of HKSA 700, Forming an Opinion and Reporting on Financial Statements, HKSA 701 shall be applicable for audits of complete sets of general purpose financial statements of listed entities.
Listed entity is defined in the Glossary of Terms as an entity whose shares, stock or debt are quoted or listed on a recognized stock exchange, or are marketed under the regulations of a recognized stock exchange or other equivalent body.
Accordingly, HKSA 701 is applicable for audits of complete sets of general purpose financial statements of listed entities as defined in the Glossary of Terms which is consistent with the IAASB's Glossary of Terms.
HKSA 701 is not intended to apply to securities offering documents, including prospectuses, unless it is required by law or regulation to communicate key audit matters in the auditor's report. The Main Board Listing Rules and GEM Listing Rules of The Stock Exchange of Hong Kong Limited as at the date of this publication do not require securities offering documents to apply HKSA 701.
Q4. | HKSA 720 (Revised), The Auditor's Responsibilities Relating to Other Information, sets out revised requirements for the auditor to read and consider other information included in the annual report. How should the requirements of HKSA 720 (Revised) be applied to annual reports that are presented in more than one language? |
The Auditing and Assurance Standards Committee (AASC) noted that, based on the requirements included in the Listing Rules referred to below, for a Hong Kong incorporated issuer, the annual report must be in English and accompanied by a Chinese translation; and for an overseas issuer or a PRC issuer, all documents furnished by the overseas/PRC issuer, including accounts, which are in a language other than English must be accompanied by a certified English translation. In this regard, most annual reports for listed entities in Hong Kong are presented in more than one language.
In accordance with the application guidance in paragraph A12 of HKSA 720 (Revised), it states that when the annual report is translated into other languages pursuant to law or regulation (such as may occur when a jurisdiction has more than one official language), or when multiple "annual reports" are prepared under different legislation (for example, when an entity is listed in more than one jurisdiction), consideration may need to be given as to whether one, or more than one of the "annual reports" form part of the other information. In this regard, the AASC hereby provides guidance to its practitioners as follows.
Given that the translated documents would not, and should not, result in any new or different information to be provided to the users of the annual report, the AASC is of the view that the translated information, regardless of whether it is obtained by the auditor prior to, or after, the date of the auditor's report, should not be considered as other information for the purposes of HKSA 720 (Revised).
Practitioners are reminded that paragraph 13(a) of HKSA 720 (Revised) requires auditors to determine, through discussion with management, which document(s) comprises the annual report. Where practitioners expect the entity may present the documents comprising the annual report in more than one language, it is recommended that practitioners discuss and confirm with management as to which language version(s) of the documents will be provided to the auditor in order to fulfil the requirements of HKSA 720 (Revised) and the timing of the preparation of those documents.
Some examples for illustration purposes:
Case 1
A Hong Kong incorporated listed issuer provides the final version of the document(s) comprising the annual report in English to its auditor prior to the date of the auditor's report. The Chinese translation of the annual report is expected to be prepared at a later date.
In the "Other Information" section of the auditor's report, the auditor identifies the document(s) obtained prior to the date of the auditor's report. There is no need to include the Chinese translation in the list of information expected to be obtained after the date of the auditor's report as the auditor has already read the other information in English prior to the date of the auditor's report and the information in Chinese will not provide new or different information when it is available at a later date.
Case 2
A PRC listed issuer provides the final version of the document(s) comprising the annual report in Chinese to its auditor prior to the date of the auditor's report. The English translation of the annual report is expected to be prepared at a later date.
In the "Other Information" section of the auditor's report, the auditor identifies the document(s) obtained prior to the date of the auditor's report. There is no need to include the English translation in the list of information expected to be obtained after the date of the auditor's report as the auditor has already read the other information in Chinese prior to the date of the auditor's report and the information in English will not provide new or different information when it is available at a later date.
Listing Rules References:
1. Main Board Rule 13.46(1)(b) Note 1 – for an issuer (other than an overseas issuer and a PRC issuer)
The directors’ report, auditors’ report, annual accounts and, where applicable, summary financial report must be in the English language and must be accompanied by a Chinese translation. In respect of overseas members, it shall be sufficient for the issuer to mail an English language version of either (i) its directors’ report, auditors’ report and annual accounts or (ii) its summary financial report if such documents contain a prominent statement in both English and Chinese to the effect that a Chinese translation is available from the issuer, on request.
2. Main Board Rule 13.46(2)(c) Note 1 – for an overseas issuer or a PRC issuer
If an issuer’s primary listing is or is to be on the Exchange the annual report, annual accounts, auditors’ report and, where applicable, summary financial report must be in the English language and must be accompanied by a Chinese translation. In respect of overseas members, it shall be sufficient for the issuer to mail an English language version of its annual report, annual accounts, auditors’ report and, where applicable, summary financial report if such documents contain a prominent statement in both English and Chinese to the effect that a Chinese translation is available from the issuer, on request. If the issuer’s primary listing is or is to be on another stock exchange such documents must be in the English language or be accompanied by a certified English translation.
3. Main Board Rule 19.27 / 19.55
All documents furnished by an overseas issuer, including accounts, which are in a language other than English must be accompanied by a certified English translation. If the Exchange so requires, an additional translation must be prepared in Hong Kong at the overseas issuer’s expense by such person or persons as the Exchange shall specify.
4. Main Board Rule 19A.57
All documents furnished by a PRC issuer, including accounts, which are in a language other than English must be accompanied by a certified English translation. If the Exchange so requires, an additional translation must be prepared in Hong Kong at the PRC issuer’s expense by such person or persons as the Exchange shall specify.
5. GEM Rule 18.03 Note 2
The directors’ report, auditors’ report, annual financial statements (including consolidated financial statements) and, where applicable, summary financial report must be in the English language and must be accompanied by a Chinese translation or be in the Chinese language accompanied by an English translation. In respect of overseas members, it shall be sufficient for the listed issuer to mail an English language version of either (i) its directors’ report, auditors’ report and annual financial statements or (ii) its summary financial report if such documents contain a prominent statement in both English and Chinese to the effect that a Chinese translation is available from the listed issuer, on request.
6. GEM Rule 24.23
All documents furnished by an overseas issuer to the Exchange, including accounts, which are in a language other than English or Chinese must be accompanied by a certified English or Chinese translation. If the Exchange so requires, an additional translation must be prepared in Hong Kong at the overseas issuer’s expense by such person or persons as the Exchange shall specify.
7. GEM Rule 25.45
All documents furnished by a PRC issuer, including accounts, which are in a language other than English or Chinese must be accompanied by a certified English or Chinese translation. If the Exchange so requires, an additional translation must be prepared in Hong Kong at the PRC issuer’s expense by such person or persons as the Exchange shall specify.