The Perceived Message in the Audit Report – An
Experimental Exploration
Abstract
This paper reports on the findings of a series of experiments which investigated the
perceived message in four different audit reports. The study involved 252 participants;
125 in New Zealand and 127 in the United Kingdom. In a between-groups design, the
participants were allocated to four experimental conditions, each containing a variation
of the audit report (from short-form to long-form). Under each experimental condition,
participants were asked to express an opinion on the audit report and on the related
financial statements.
The research findings indicate that the content of the audit report does not have a
significant influence on the message perceived by the reasonably knowledgeable users
of financial statements with regard to the nature of the audit, the respective roles of the
auditor and the directors and the risk of investing in the reporting entity. However,
those who do not read or only occasionally read financial statements are less inclined to
agree that the auditor „guarantees‟ the accuracy of the financial statements and the
going concern of the reporting entity than those who read financial statements more
regularly.
1
Introduction
Criticism and a loss of confidence in external financial statement audits has
characterised most of the western world since the corporate debacles of the last thirty
years. The criticism and loss of confidence in the audit function results from a
mismatch between society‟s expectations of auditors (whether reasonable or not) and
what they perceive auditors to deliver. The most visible element of a financial
statement audit is the auditor‟s report and part of the mismatch between society‟s
expectations of auditors and what it perceives they deliver may result from financial
statement users and other interested parties in society failing to understand the
messages conveyed by an auditor‟s report.
Against this background, research was conducted to:
1. ascertain the extent, structure and composition of the audit expectationperformance gap in the United Kingdom (UK) and New Zealand (NZ) in 2008;
2. identify and explain differences in the extent, structure and composition of the
audit expectation-performance gap: (a) in the UK and NZ in 2008 (a crossnational study); and (b) in NZ in 1989, 1999 and 2008, and in the UK in 1999
and 2008 (longitudinal studies);
3. ascertain financial statement users‟ understanding of the messages conveyed in
a standard unqualified auditor‟s report;
4. Identify changes to the format and wording of auditors‟ reports desired by
financial statement users.
The first part of this study (questions one and two) found some narrowing of the
deficient performance gap in the UK between 1999 and 2008, compared with a slight
widening of the gap in NZ (Porter et al 2009). The research suggested that this may
reflect differences in the monitoring of auditors‟ performance in the two countries over
the period and/or the greater publicity given to corporate and financial issues with audit
implications in the UK.
This paper reports on parts three and four of this research project. After determining
financial statement users‟ understanding of the message conveyed in a standard
unqualified auditor‟s report; the question addressed in this study is: what changes to the
format and wording of auditors‟ reports are desired by financial statement users, and
how can these best be achieved.
In reviewing research investigating the audit expectation gap and the development of
the standard auditor‟s report (Porter et al 2009), it was noted that the audit expectation
gap is not new, nor is it limited geographically. Numerous studies have been conducted
in many countries of the world. Most have focused on establishing whether an audit
expectation gap exists in the country where the study was conducted and identifying
some of its contributing factors. It is also noted that institutional and national factors
may have a significant effect on any expectations of auditors and the perception of their
performance and, thus, on the extent and composition of the audit expectation gap.
Additionally, it has been noted that, at least in NZ between 1989 and 1999, auditors‟
performance was perceived by auditors‟ interest groups to have improved and be better
2
aligned to reasonable expectations of auditors. Further, it appears that knowledge of
auditors‟ responsibilities improved over the decade but, nevertheless, unreasonable
expectations of auditors increased markedly.
The development of the standard auditor‟s report was stimulated primarily by the
Cohen Commission‟s (CAR, 1978) expression of concern about financial statement
users‟ lack of knowledge about the responsibilities of management and the auditor for
the financial statements, and the audit process. In an attempt to address these concerns,
the standard auditor‟s report became a vehicle for educating financial statement users,
and explanatory paragraphs about the responsibilities of management and the auditor
for the financial statements and the audit process were incorporated in the auditor‟s
report. However, this then resulted in concerns being raised about the auditor‟s report
becoming long, complex and less understandable. The UK‟s Auditing Practices Board
(APB)1 has, to an extent, addressed this concern by providing for the transfer of
standardised wording relating to the auditors‟ responsibilities and the audit process to
be replaced in the audit report with a cross reference to the APB‟s website from where
the relevant information may be obtained.
Although it was intended the expanded audit report would be successful in educating
financial statement users about management‟s and the auditor‟s responsibilities for the
financial statements and the audit process, considerable misunderstanding remains. This
is reflected, for example, in the report of the Audit Quality Forum‟s (AQF) Working
Group on Auditor Reporting (2007) in which it recorded its “concern over the differing
perceptions among stakeholders…shareholders, boards [of directors], auditors,
regulators and other stakeholders…of the purpose of an audit” (para 1). Further,
another concern of the Cohen Commission – that of the auditor‟s report being treated as
a symbol – as well as financial statements users‟ dissatisfaction with the lack of
informative reporting by auditors remain to be addressed. Thus, there remain
unanswered questions relating to users‟ understanding of the auditor‟s report and the
information they would like included, to be explored in this study.
The paper is organised as follows. The next section sets out the role of the experimental
approach, including prior experimental literature on audit reports. This is followed in
section three by a discussion of the approach adopted in the present study, including the
background of the participants in the experiments, comprising reasonably
knowledgeable users of financial statements. Section four sets out in detail the research
findings. The final section explores the potential implications of the study for auditing
standard-setters.
Research method
This element of the research project employs a laboratory study conducted in the UK
and NZ in 2008 to assess whether users‟ understanding of the messages conveyed in the
auditor‟s report is influenced by differences in the format and content of auditors‟
reports. As outlined by Maines (1995) and Maroney and Ó hÓgartaigh (2005),
laboratory studies are particularly appropriate for an examination of „what if‟ types of
questions, including disclosures which differ from those used in practice. Laboratory
1
http://www.frc.org.uk/apb/
3
studies are also useful as the controlled environment in which they take place allows for
a careful calibration of the information received by the participants and, consequently,
of the decision environment.
Experimental research on auditors‟ reports dates back to the work of Libby (1979).
Recognising the wider implications for the audit expectation gap of financial statement
users failing to understand the messages conveyed in the audit report, Libby observed:
Members of the accounting profession have expressed concern … that the message the
auditor intends to communicate through the audit report may be misperceived by users.
Apparently, they believe that such misperception could lead the user to make decisions
different from those that would be made had the intended message been perceived
properly. Similar concerns over the effects of possible misperceptions underlie recent
attempts by accountants to educate users regarding the meaning of opinions expressed
by the CPA. (Libby 1979, p.99).
There is a long tradition of experimental research based on Libby‟s early work; inter
alia Houghton 1983; Gul 1990; Wright & Davidson 2000; Bessell, Anandarajan &
Umar 2003; and Guiral-Contreras, Gonzalo-Angulo & Rodgers 2007. Following in that
tradition, the present study investigating financial statement users‟ understanding of the
messages conveyed by standard unqualified audit reports adopted a
laboratory/experimental approach to explore participants‟ responses to four differing
audit reports. This allowed for the assessment, under controlled conditions, of the
decision impact of four different variations of the audit report. Differences in the
content and format of the four audit reports used in the experiments are summarised in
Table 1; it should be noted that all four variants contained an unqualified opinion.
Participants in these experiments comprised a total of 252 MBA students; 125 were
from four universities in NZ and 127 from three universities in the UK. In tasks such as
those involved in this research, MBA students are seen (by, for example, Libby,
Bloomfield & Nelson 2002, p.203) as “particularly useful” participants as “they often
have some accounting knowledge and investing experience”. MBA students are widely
accepted in the literature as proxies for reasonably knowledgeable readers of financial
statements (see, for example, Bloomfield & Libby 1996; Kennedy, Mitchell & Sefeik
1998; Lipe 1998; Bloomfield, Libby & Nelson 1999, 2000; Maines & McDaniel 2000;
Nelson, Krische & Bloomfield 2000; Maroney & Ó hÓgartaigh 2005; Elliott et al 2007;
Maroney, McGarry & Ó hÓgartaigh 2008).
The present study also utilises an experimental approach to explore contrasting responses
to four differing audit report formats as outlined in the introduction. This allows for the
assessment of the „decision impact‟ of four different variations of audit report under
controlled conditions, as set out in Table 1. All audit reports were unqualified.
Tables 2 sets out the background and experience of the participants. It was also
determined that 40 per cent of participants in New Zealand and 42 per cent in the
United Kingdom had prior university-level education in accounting. Consistent with
best experimental practice in behavioural research, a „between-subjects design‟ was
used in this research. Participants were randomly assigned to each group and each
group was presented with an identical set of financial statements but a variant of an
unqualified audit report as set out in Table One (the four audit report-types used in the
4
experiments are reproduced in the appendix to this paper). As a result of the random
allocation of participants to each group, there were no significant differences in the
background and experience of the participants in each group.
Participants were asked to indicate their opinion on ten different statements as set out in
Table 3. In Table 3, Questions 1 and 2 relate to the respective responsibilities of
auditors and directors; Questions 3, 4, 5 and 10 relate to the outcome of the audit;
Question 6 relates to the risk of investing in the reporting entity; Questions 7 and 9
relate to audit process; and Question 8 relates to the independence of the auditor. The
experiments were carried out between October 2008 and May 2009 by one of the
research team, in some cases accompanied by a research assistant. The instructions to
participants were uniform across each data collection exercise. Robustness checks
confirmed that the participants‟ responses did not differ significantly across the time
period in which the data was collected.
Research findings
The research findings are in two parts:
1. The results of the experiments, and
2. The results of the open-ended questions following the experiments.
These are presented in the discussion that follows.
The results of the experiments
Based on the conventional statistical tests (One-Way ANOVA and t-tests of differences
between groups), no significant difference was found between the responses of the
participants across the four groups examining different forms of the audit report (Table
one). This indicates that the differing audit reports had no significant impact on
participants‟ perceptions (irrespective of the variant of the audit report they received)
regarding:
a) The respective responsibilities of auditors and directors for the financial
statements;
b) The nature of the audit process;
c) The risk of investing in the reporting entity.
Of the 252 participants in the experiments, 57 (22 per cent) never read or rarely read an
audit report. When the responses of this group were analysed, it was found that
participants who receive financial statements but either never or rarely read the audit
report, agree significantly less with the following statements than participants who read
audit reports occasionally or usually:
-
The auditor's opinion on the financial statements guarantees that the
financial statements are accurate (mean = 3.7/7 and 4.4/7 respectively);
-
The auditor's opinion on the financial statements guarantees that the
reporting entity is a going concern (mean = 3.5/7 and 4.2/7 respectively).
5
The results of these experiments revealed that:
(a) The content of the auditor‟s report does not have a significant influence on the
messages understood by reasonably knowledgeable users of financial statements with
regard to:
(i) The nature of the audit process,
(ii) The respective roles of the auditor and the directors,
(iii) The risk of investing in the reporting entity, and
(b) Those that do not, or only rarely, read financial statements are less inclined to agree
that the auditor guarantees:
(i) The accuracy of the financial statements, and
(ii) The continued existence of the reporting entity,
than those who read financial statements more regularly.
This suggests that this second group of participants were à priori more sceptical about
the ability of the audit report to enhance the quality of financial reporting – and/or to
signal that the reporting entity is a going concern – than those who read audit reports
occasionally or usually. As indicated earlier, other robustness checks indicate that there
are no other confounding differences in these experimental responses based on the
experience, background or location (NZ or UK) of the participants
The scepticism of these participants who did not read or only occasionally read
financial statements was an unexpected finding. Possibly the more disinterested users
appeared to have been less exposed to, or impacted by, any efforts of the profession and
regulators to educate users as to the nature of the audit function.
The results of the open-ended questions
The experiments were followed by open-ended questions which asked participants to
indicate
a) the three elements of the audit report which they found most useful; and
b) other information which they would like included in the audit report.
The purpose of this investigation was to establish the changes to auditors‟ reports that
financial statement users (and other societal interest groups) consider would make the
reports more useful. In order to ascertain financial statement/audit report users‟
preferred content and format of audit reports, the participants were asked to indicate in
order of priority, which three elements of an auditor‟s report they find most useful;
information that is currently provided in an auditor‟s report they would prefer to be
omitted; and other information they would like to be included in an auditor‟s report.
In order to ensure it did not affect this experiment subjects‟ responses to the statements
comprising the experiment task, they were not provided with this section of the
research instrument until they had completed the experiment task. To ascertain whether
or not their responses to the open-ended questions indicated above were affected by the
type of audit report (A, B, C, or D: see Table 1) they examined for the experimental
task, the page containing the open-ended questions they received was coded to identify
6
the type of audit report they had examined for the experiment. Analysis of their
responses indicates that the audit report they received for the experiment task did not
affect their answers to the open-ended questions.
Perhaps not surprisingly, the auditor‟s „true and fair‟ opinion was identified as the most
important element of an auditor‟s report. However, a majority of the respondents also
identified among the most important elements of an auditor‟s report:
(i)
The statement of the auditors‟ and directors‟ responsibilities,
(ii)
The basis of the auditor‟s opinion,
(iii)
Identification of the firm which conducted the audit, and
(iv)
The types of, and reasons for, audit qualifications.
Given the findings so far: that statements explaining the respective responsibilities of
the directors and auditor for the financial statements and the audit process do not
influence financial statement users‟ understanding of these matters; the first two items
in the list above are somewhat surprising.
With respect to information that should be omitted from the auditor‟s report, there was
little consensus, as two opinions most frequently expressed by the respondents were:
(i)
Nothing should be removed, and
(ii)
Everything other than the auditor‟s opinion should be removed.
Regarding additional information that should be provided in an auditor‟s report, the
most commonly expressed opinions were that the report should contain an expression
of the auditor‟s opinion on:
(i)
The effectiveness and adequacy of the auditee‟s internal controls and
internal audit function, and
(ii)
The auditee‟s culture, the effectiveness of its governance structure and an
assessment of management‟s capability/adequacy.
Some respondents also offered additional comments on auditors‟ reports which
correspond closely with those identified during the literature review as views expressed
in the UK to the Audit Quality Forum’s Working Group on Auditor Reporting, namely:
that auditors‟ reports:
(i)
Are too formulaic and rather bland,
(ii)
Do not give any company specific information,
(iii)
Do not give the impression that the auditee‟s financial statements have been
critically examined,
(iv)
Need to be expressed more simply and clearly so they may be more readily
understood,
(v)
Should not contain statements of the directors‟ and auditors‟ responsibilities
or a description of the audit process – this material should be moved
elsewhere where it may be accessed by those who wish to do so, and
7
(vi)
Should commence with the auditor‟s opinion.
Two rather more helpful comments conveyed by the respondents were:
(i)
That the descriptive material (for example, the statements of the directors‟
and auditors‟ responsibilities, and the description of the audit process) could
be moved elsewhere (i.e. removed for the audit report but still available to
users), and
(ii)
The auditor‟s opinion could usefully be moved to the beginning of the audit
report. As for the comments noted above, these two suggestions also mirror
those suggested to the AQF’s Working Group on Auditor Reporting (2007).
The dominant themes in this regard were that the most useful aspect of the audit report
was whether it was qualified or not and who the auditors were (i.e. Big 4 or others). By
far the most significant element of other information which the participants would like
to see included in the audit report was the auditor‟s opinion concerning the risks faced
by the reporting entity and/or the risk of investing in the reporting entity.
Discussion and conclusions
The expansion of the standard auditor‟s report, from the short form to the long form,
was stimulated primarily by the Cohen Commission‟s (1978) expression of concern
about financial statement users‟ lack of knowledge about the responsibilities of
management (or, in applicable cases, the directors) and the auditor for the auditee‟s
financial statements, and about the audit process. In an attempt to address these
concerns, the standard auditor‟s report became a vehicle for educating financial
statement users, and explanatory paragraphs about the responsibilities of management
(or the directors) and the auditor for the financial statements and the audit process were
incorporated in the auditor‟s report. However, this then resulted in concerns being
raised by critics such as Elliott and Jacobson (1987) about the auditor‟s report
becoming a long, complex and less understandable document.
Research conducted after the AICPA issued Statement on Auditing Standards (SAS)
No. 58: Reports on Audited Financial Statements in 1988 found that, initially, the
expanded audit report was successful in educating financial statement users about
management‟s and the auditor‟s responsibilities for the financial statements and the
audit process. However, studies of the audit expectation gap conducted since the early
1990s, when the long form audit report was adopted into general use internationally,
and also research specifically investigating the auditor‟s report, have found that
considerable misunderstanding about the audit function and auditors‟ responsibilities
remains. The Working Group on Auditor Reporting, for example, noted its “concern
over the differing perceptions among stakeholders…shareholders, boards [of directors],
auditors, regulators and other stakeholders…of the purpose of an audit” (AQF 2007,
para 1). Thus it seems that the long form audit report has not achieved its intended
educational purpose. It may be that its length and apparent complexity, together with its
standard wording, discourages financial statement users and other parties interested in
the reporting entity from reading the auditor‟s report. Indeed, a further concern
identified by the Cohen Commission (1978) is that, as a consequence of the standard
wording and format of auditors‟ reports, they are treated as a symbol rather than read.
8
Nearly 30 years after the Cohen Commission the AQF Working Group found that
financial statement users were very critical of auditors‟ reports for being:
“too boilerplate and overly standardised and … shareholders can feel excluded
from what they perceive to be the “real” findings of the audit…the report is too
long … [and]… reports are virtually identical from one company to another and,
consequently, most of the information too generic to be of real use”. (AQF
2007, Para 25).
Some of those who participated in this research were similarly critical of the “formulaic
and bland” form of auditors‟ reports and the inclusion of identical explanatory
paragraphs in all auditors‟ reports. Respondents in the UK and NZ in 2008, and those of
the AQF Working Group in the UK in 2007, suggested removing the descriptive
material about the directors‟ and auditors‟ responsibilities and about the audit process
from the auditor‟s report and placing it elsewhere – where those who wish to access it
are able to do so. Both groups of respondents also made it clear that they wanted
auditors‟ reports to include more company specific information – in particular, more of
the information the auditor routinely provides to the auditee‟s management and/or
directors (or audit committee).
Given that in most countries there is a system of regulating audits and auditors, the
profession will need to work collaboratively with the relevant regulatory authority to
ensure that:
(i)
There is better clarity and focus to the audit opinion by moving the opinion
paragraph to the beginning of the auditor‟s report,
(ii)
The wording of auditor‟s reports is clear and simple so that it is
understandable, and
(iii)
The example of the Auditing Practices Board 2009 International Standard
on Auditing 700 (Revised) The Auditor’s Report on Financial Statements is
followed, replacing the explanatory paragraphs on the auditors‟
responsibilities and the audit process in the auditor‟s report with a crossreference to a location where the information is accessible to anyone who
wishes read it.
In the late 1980s and early 1990s, in an attempt to narrow the audit expectation gap, the
auditing profession adopted the standard auditor‟s report as a means of educating
financial statement users about the respective responsibilities of the directors and the
auditor for the financial statements and about the audit process. Between 1999 and
2008 essentially the same standard long form audit report was used in both the UK and
NZ. (Minor differences in the reports reflected legislative and regulatory differences in
the two countries). However, analysis of the results of these surveys in 1999 and 2008
suggests that the educational intent of the standard long form audit report has made
little, if any, difference to financial statement users‟, and other interest groups‟,
understanding of the audit function or auditors‟ responsibilities. This conclusion is
supported by this experiment, designed to ascertain financial statements users‟
understanding of the messages contained in a standard unqualified auditor‟s report.
This experiment found that the content of the auditor‟s report makes no difference to
9
financial statements users‟ understanding of the respective responsibilities of the
directors and the auditor for the financial statements or the nature of the audit process.
It thus seems that few financial statement users derive value from the inclusion of the
explanatory paragraphs about these matters in an auditor‟s report.
The AQF Working Group (2007) suggested that financial statement users want
auditors‟ reports to include company specific information and, more particularly, more
of the information that is reported to the auditee‟s directors and/or senior management.
Along similar lines, in response to a question asking the participants to identify
additional information they would like included in auditors‟ reports, the items identified
by the largest number of respondents were statements by the auditor relating to:
(i)
The effectiveness of the auditee‟s internal controls, non-compliance with
key controls and the internal audit function, and
(ii)
The auditee‟s culture, the effectiveness of its governance structure and an
assessment of management‟s capability/adequacy.
The first of these items coincides with the responsibility which made the greatest
contribution to the deficient standards gap in both the UK and NZ in 2008 (14 per cent
and 11 per cent respectively) and is an existing responsibility of auditors who audit
companies that fall within the Sarbanes-Oxley Act requirements. Given the apparent
benefit financial statement users, and other societal interest groups, would derive from
being provided with information about the effectiveness of the auditee‟s internal
financial controls, combined with the fact that it is an existing responsibility of auditors
in a major jurisdiction (and has an impact in many other countries with companies
listed or registered in the USA, or major components thereof), it does not seem
unreasonable to extend auditors‟ responsibilities in other jurisdictions (that is,
internationally) to include this responsibility. Similar remarks apply to the three
responsibilities indicated above which contribute to the deficient standards gap in NZ
that are already existing responsibilities of auditors in the UK.
It may be thought that the second additional item the experiment participants indicated
they would like included in auditors‟ reports (that is, a statement by the auditor on the
auditee‟s corporate culture and the adequacy of its governance structure) is reflected in
the statement of compliance (or otherwise) with the Code (or Principles) of Corporate
Governance which listed companies in the UK and NZ are required (and non-listed
issuers in NZ are encouraged) to provide in their annual reports. However, it seems that
the experiment participants would like an auditor‟s report to include a brief statement
summarising the auditor‟s assessment of the auditee‟s corporate culture and the
adequacy of its governance structure. Auditors make such an assessment when meeting
the requirements of ISA 315: Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and its Environment. Further,
institutional investors who engage in dialogue with the auditee‟s directors are in a
position to form a judgment on these matters for themselves. However, other investors,
and other parties interested in the entity, do not have this opportunity. While not
discounting the practical and legal challenges involved in auditors including the
information in the audit report, it does not seem unreasonable for the auditor to provide
financial statement users with the information they seek. An alternative solution may be
10
to provide Internet coverage of all meetings between institutional investors and the
directors (or audit committees) of companies so that all those interested in the entity
have an opportunity similar to that of the institutional investors to gain some insight
into the entity‟s corporate culture and the adequacy of its governance structure.
This study has a number of limitations. While experimental research offers a strong
control environment and the ability to create audit report scenarios which are not
naturally available, the representativeness of experimental findings is generally limited.
As a consequence, the findings reported in this research provide evidence of the
perceptions of a group of reasonably knowledgeable UK and NZ readers of financial
statements. Given the relatively small numbers involved and the population from which
they are drawn (MBA students), these findings are indicative rather than conclusive
evidence of the perceptions of a more general population. There is an opportunity for
further research extending these exploratory questions to a wider audience.
However, the findings of this research provide insight into a range of expectations of
auditors, the perceived standard of their work, and the extent to which those
expectations are not being fulfilled. It has also identified shortcomings in the standard
auditor‟s report – the most visible element of the auditor‟s work – as perceived by
financial statement users and other interested parties in society who rely on those
reports for useful information about the auditee, its financial statements, and other
information provided in its annual report.
Some recommendations have been proposed on ways in which auditors might better
satisfy reasonable expectations of them, alter those that are not reasonable, and provide
financial statement users (and others) with a report which better meets their information
needs. Thus the research contributes in a meaningful way towards narrowing the audit
expectation-performance gap and identifying ways in which auditors‟ reports might be
made more valuable to those who read them. If auditors‟ performance (as perceived by
society) is better aligned with expectations of them, the liability and credibility crises
facing auditors should abate and confidence in the auditing profession and its work
should gradually be restored.
These findings suggest two main conclusions:
1. Audit report „form‟ does not significantly affect participants‟ perceptions of the
role of the auditor vis-à-vis the directors or the risk of investing in the reporting
entity; and
2. Those who do not read or only occasionally read the audit report are less
inclined to believe that the auditor „guarantees‟ the accuracy of the financial
statements and the going concern of the reporting entity than those who read the
audit report more regularly.
While these findings are limited, similar to the prior studies by Libby et ors, they do
indicate that reasonably well educated users (as in the experiments) are not/no longer
influenced by the form of the audit report. This further suggests that given that a
substantive number of participants who receive financial statements do not read the
audit report, the audit report itself may not be the best instrument with which to address
expectations of the audit and the auditor.
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Table 1 – Four forms of the Audit report type used in this experiment
Audit report
A
UK/NZ Audit report
type
Short form audit
report (prior to
1990)
B
Contains
Does not contain
Audit opinion
Statement of Auditors‟
Responsibilities
Statement of Directors‟
Responsibilities
Report on Other Legal and
Statutory Requirements as
presented in IAS 700 (Revised)
Statement of Directors‟
Responsibilities
Report on Other Legal and
Statutory Requirements as
presented in IAS 700 (Revised)
Report on Other Legal and
Statutory Requirements as
presented in IAS 700 (IAS 700
Revised)
Audit opinion
Statement of Auditors‟
Responsibilities
C
IAS 700 (prior to
revision)
D
IAS 700 (Revised)
Audit opinion
Statement of Auditors‟
Responsibilities
Statement of Directors‟
Responsibilities
Audit opinion
Statement of Auditors‟
Responsibilities
Statement of Directors‟
Responsibilities
Report on Other Legal and
Statutory Requirements as
presented in IAS 700
(Revised)
Table 2: Interest group of participants
New Zealand
Not now but in the last three years
Stockbroker
Financial Analyst
Member of an Employees‟ Union
Financial journalist
Member of a professional accounting body
Corporate debenture holder
Lawyer
Now
Stockbroker
Financial Analyst
Private Shareholder
Member of an Employees‟ Union
Financial Journalist
Corporate debenture holder
Lawyer
None of the above
United Kingdom
%
No.
%
No.
1
1
3
9
25
1
0
1
1
4
12
31
1
0
1
3
3
7
22
1
1
1
4
4
9
28
1
1
1
2
2
1
1
1
2
50
100
1
3
3
1
1
1
3
62
125
1
3
5
1
1
1
1
49
100
1
4
7
1
1
1
1
63
127
12
Table 3: The experimental task
Participants were asked to answer the following questions by indicating the number of each scale which
best reflected their opinion.
1a. Responsibility for the preparation of the financial statements of Bord Corporation lies with:
The Auditors 1 - 2 - 3 - 4 - 5 - 6 - 7 (Directors)
1b. Indicate your level of confidence in the opinion you have indicated above regarding
responsibility for the preparation of the financial statements
Very Low Confidence 1 - 2 - 3 - 4 - 5 - 6 - 7 Very High Confidence
2a. Responsibility for safeguarding the assets of Bord Corporation lies with
The Auditors 1 - 2 - 3 - 4 - 5 - 6 - 7 The Directors
2b. Indicate your level of confidence in the opinion you have indicated above regarding
responsibility for safeguarding the assets of Bord Corporation
Very Low Confidence 1 - 2 - 3 - 4 - 5 - 6 - 7 Very High Confidence
3. The financial statements give a true and fair view of Bord Corporation‟s financial position as at 30
June 2008 and of its financial performance and cash flows for the year then ended
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
4. The auditor‟s opinion on these financial statements guarantees that Bord Corporation‟s financial
statements are accurate
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
5. The auditor‟s unqualified opinion on these financial statements guarantees that Bord Corporation is a
going concern
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
6. Indicate your assessment of the risk of investing in Bord Corporation‟s shares
Very Low Risk 1 - 2 - 3 - 4 - 5 - 6 - 7 Very High Risk
7. The auditor verifies every transaction of Bord Corporation
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
8. The auditor is independent of Bord Corporation‟s management
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
9. The auditor does not need to exercise judgment when performing his or her audit of Bord
Corporation‟s financial statements
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
10. The auditor of Bord Corporation provides assurance that all of the information presented in Bord
Corporation‟s 2008 annual report (which contains the audited financial statements) is reliable
Strongly Disagree 1 - 2 - 3 - 4 - 5 - 6 - 7 Strongly Agree
13
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