The primary objective of an external audit is to provide reasonable assurance that the financial statements reflect a true and fair view of the financial performance and financial position of a given institution for a particular financial year. These audited financial statements are used to make among others, investing and financing decisions.
The questions that is being asked now is, is this enough? Is it adequate to rely on historical information when making future decisions?
In an attempt to address these questions, there are strong calls for what is referred to as Integrated Reporting (IR).
ACCA explains IR as being focused on showing the connectivity of strategic objectives, risk and performance to demonstrate how organizations create value. This means that organizations need to understand and report on all areas of performance and not just focus on short-term financial results.
It is useful to imagine yourself investigating a company about which you know nothing to decide whether or not you want to invest in it. Going to the latest annual report and financial statements would probably be your starting point, but you will be left with many unanswered questions – certainly if the company shows the minimum information required by law and the accounting and financial reporting standards. You will learn relatively little about the company’s business activities, their competitors, their future plans or how they intend to achieve sustainable competitive advantage. IR aims to fill the gaps so that existing or prospective investors better understand the company.
With this new concept, are external auditors ready to provide assurance on IRs? How practical is it to audit IRs? And what additional skills will external auditors require to perform these skills? Is it time for external audit to begin considering an improved collaboration with internal audit?