The traditional approach to financial Reporting—providing a historical view of financial information—has continued to come under scrutiny, as many would like to see it expand and include forward-looking elements that also cover a broader scope of topics.
Deloitte polled respondents about both the insights they receive from their audits (which could be provided by any number of participants in the financial Reporting ecosystem). When it comes to audit, 92% per cent of respondents seek a more holistic view of the direction their organisation is heading from their audits. When asked which business areas they would like their audit to include in the future, they were equally split among the following areas—corporate culture, Sustainability practices, ethical standards and practices, social responsibility practices, corporate purpose and cyber risk.
When asked specifically about financial statement audits, 95% of those Survey said that a financial statement audit should provide additional value beyond providing an independent auditor’s report on the historical financial information. These findings suggest that a financial statement audit should inform as well as assure, extending its scope to areas of broader public interest, not solely historic financial statements.
Nearly three-quarters of respondents (73%) believe financial statement audits are designed to provide assurance that any fraud will be detected by the auditors, but the remaining 27% disagree. However, in its current form, an audit is not designed to provide these absolute assurances indicating there is a misunderstanding about what an audit is designed to do. The auditor’s responsibilities in relation to detecting fraud is an area of continued focus in adapting the scope of the audit and requires the constructive, integrated evolution of standards.
Fraud risk is not new, but recent corporate failures have increased the focus. This is emphasising the responsibilities of management boards, regulators and auditors. The COVID-19 pandemic has resulted in significant operational and financial pressures on many companies and may have led to changes or weaknesses in their internal controls. Deloitte has heightened its focus on the controls environment within the companies it audits, including Leadership tone-at-the-top, exercise of professional scepticism, ongoing assessment of risks and nature of audit evidence.