Towards a Better Understanding of the Financial Statement Auditor Reports

The American Institute of Certified Public Accountants (AICPA), the American Accounting Association (AAA), and the International Auditing and Assurance Standards Board (IAASB) have joined forces to launch a research initiative that will provide a better understanding of users’ perceptions of the financial statement audit and the auditor’s report. The research is intended to independently examine the perceptions of users of financial statements in countries around the world.


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“Anecdotal evidence points to financial statement users not consistently understanding communications in an unqualified auditor’s report, but there’s little rigorous evidence to support the anecdotal observations,” Douglas F. Prawitt, Chair of the Auditing Standards Board’s Audit Report Research Task Force and Glen Ardis Professor of Accountancy at Brigham Young University point out. “This project should provide the required information, as well as anchor any effective modifications necessary to clarify the communication of information to financial statement users.”

A “Request for Proposal” is being issued, soliciting academic research to identify and provide information about such perceptions. The AICPA’s Auditing Standards Board (ASB) and IAASB will fund between U.S.$10,000 and $20,000 for each project.

The ASB has a current project to consider whether the auditor’s report should be revised. The IAASB recently completed a project in this regard. The new research findings will provide important information that can be used as a basis for further revisions to the auditor’s report.

“The interests of all stakeholders will be better served if any gaps between users’ understanding and the intended meaning of the auditor’s report, including the level of assurance that can reasonably be derived from a financial statement audit, can be identified and addressed,” IAASB Technical Director Jim Slyph said, emphasizing the public benefit of the project.

Mark Beasley, President of the AAA Auditing Section and a professor at North Carolina State University, explains, “We are thinking globally with this project. The plan is for the ASB to select one or more proposals to examine U.S. perceptions and the IAASB to select one or more proposals to examine perceptions internationally. We envision that, once the selected projects are completed, the ASB and IAASB will fund additional research to identify and explore ways in which the auditor’s reports might be revised to communicate more clearly and to address identified user misperceptions.”

Research proposals must be submitted by October 2, 2006, to Sharon Walker, Technical Manager, Audit and Attest Standards, AICPA, 1211 Avenue of the Americas, New York, New York, 10036-8775.

Researchers are required to submit a summary of results to the ASB and IAASB by October 1, 2007, with a more detailed report to be provided to the Boards by January 7, 2008. The summary should be tailored toward practitioners, rather than readers of an academic journal. Researchers will have the right to publish the research, so long as the Boards are given appropriate credit for research support provided.

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