Improving transparency and relevance of auditor communications with financial statement users

Abstract

Recent SASs (e.g., SAS No. 114 (AICPA 2006b) and SAS No. 115 (AICPA 2008a)) expand required and optional communications from auditors to their clients. Given that some state laws likely allow stockholders to request access to those communications, and given that the ASB and the IAASB currently are examining how the auditor's report may be made more effective in communicating assurance to financial statement users, we propose expanding the current auditor's report by adding a set of accompanying footnotes. The footnotes could include auditor comments on information about the audit, the quality of the financial statements, the quality of the financial reporting system, and/or the quality of the client as a business entity. We conclude with suggestions for research that would identify the effects of suggested communications on various stakeholders.