Need for the Auditor’s Involvement in ESEF Report Signoff
The European Single Electronic Format (ESEF) introduction includes a set of audit requirements and has increased the annual reports’ complexity. The ESEF audit is the last stage before filing iXBRL annual reports with ESMA. It requires the auditor’s involvement in ESEF report signoff to decide whether the annual financial statements comply with the ESEF requirements.
But before understanding the need for an auditor’s opinion in an audit report, let’s delve into the purpose of a financial report audit.
The Purpose of Auditor’s Involvement in ESEF Report Signoff
Companies need to prepare Annual Financial Statements (AFS) that provide a clear picture of their financial position and performance at the financial year-end. The information provided in AFS is widely used by investors, suppliers, customers, and other company stakeholders. Therefore, to improve the transparency and accuracy of these reports for building the stakeholder’s confidence, a qualified external party (statutory auditor(s) or the audit firm(s)) is appointed to examine the financial statements and give their opinion as to:-
- Whether the financial statements reflect an accurate and fair view according to the relevant financial reporting framework, IFRS
- Whether the AFS comply with statutory requirements, where appropriate
A financial statements audit aims to achieve the same level of investor protection irrespective of how they access the information in AFS, be it a scanned-paper document or a machine-readable format.
So now that you know why auditors need to be involved in the ESEF report signoff, let’s understand the meaning and format of an auditor’s report.
What is an Auditor’s Report?
An auditor’s report is a statement included in the financial statements containing the written opinion of an audit regarding the company’s financial statements. By providing their opinion on the fairness of AFS, an auditor protects the interests of the company’s shareholders.
But what does an auditor’s report include? It includes the following:-
- Title of the report
- Name of the addressee (the person who appointed the auditor)
- Introductory paragraph
- Signature of the auditor
- Place of signature
- Date of the report
Types of Auditor’s Report
The independent audit standard setters provide clear rules and guidelines for carrying out the audit process. The auditor’s responsibility is to carry out the audit, review the output, and gain sufficient evidence to support their opinion in the auditor’s report. An auditor’s opinion in the auditor’s report can be either clean or modified.
- Clean Audit Opinion
The auditor appointed by the company is responsible for auditing the financial statements. They must also provide an opinion indicating whether the financial statements are presented according to the relevant accounting standards (IFRS) and are free from any material misstatement resulting from either fraud or error. The auditors consider several factors and use their expertise to form opinions based on the evidence gathered. If they conclude that the AFS is free from material misstatements, they issue a clean opinion as a separate paragraph in the auditor’s report.
- Modified Audit Opinion
Auditors issue a modified audit opinion when they disagree with the financial statements presented. In practice, this is an unusual occurrence because the companies make the necessary amendments to their financial statements before the audit. The auditors can also issue a modified opinion when they are unable to carry out the necessary procedures or gather relevant evidence. Moreover, they have the authority of modifying the auditor’s report without modifying the opinion. How? By adding additional paragraphs in the report to draw users’ attention to specific matters, a process commonly known as an emphasis of matter paragraph.
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