Harmonization of the auditor's report

Abstract

International efforts to harmonize the audit report, spearheaded by the International Auditing Practices Committee of the International Federation of Accountants (IFAC), culminated in the issuance of International Standard on Auditing (ISA) 13 in 1983. The stated purpose of ISA 13 was to: “provide guidance to auditors on the form and content of the auditor's report issued in connection with the independent audit of the financial statements of any entity.” The purpose of this paper is to assess whether ISA 13 has resulted in greater international harmonization of audit reports. We assess the level of harmonization both by examining the extent to which countries have adopted ISA 13 and by the extent to which the content of the auditor's report has changed. A survey of IFAC's member organizations in 86 countries netted 50 responses. Eighty-six percent of respondents (and 93% of respondents from developing and emerging economies) said they have achieved harmonization with ISA 13. We compared the auditor's reports (in financial reports) of 450 companies in 33 IFAC member countries on two different dates (a pre-ISA 13 date and a post-ISA 13 date). The results suggest a higher degree of conformity with the standard for the post-ISA 13 reports. Finally, cluster analysis was conducted to explore the dynamics of clustering from pre-ISA 13 to post-ISA 13 regimes. A slight drop in the divisiveness coefficient (DC) was observed for the total audit report elements as well as for the form elements, suggesting a less cohesive cluster structure for the post-ISA 13 regime. The empirical evidence, taken as a whole, shows reduced diversity of practices and standards involving the audit report since the issuance of ISA 13. This conclusion should provide encouragement for international standard-setters.

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