Accountancy & Management: No longer subject to the get-out clause

MEMBERS of the professions are noted for their fondness for the simple phrase 'subject to'. Whatever the practical justifications for it, their critics have always been able to claim it allows them to avoid making tricky decisions while having a 'get out' if something goes wrong, writes Roger Trapp.

For auditors, at least, part of that shield is about to be taken away. The first Statement of Auditing Standards issued by the Auditing Practices Board since it was established two years ago does away with qualified opinions expressed 'subject to' the effects of future uncertainties.

Auditors reporting on financial statements for periods ending on or after 30 September 1993 will be required to express an opinion taking into account whether the estimates and disclosures regarding uncertainties are sufficient to the extent that the financial statements provide a true and fair view. Only when this is not so will they express a qualified opinion.

Failure to comply may lead to disciplinary or regulatory action.

The idea behind the change announced yesterday is to give better information to the users of accounts. They will be able to see both that the auditors have assessed the treatment of uncertainties and that they are either satisfied or not with this treatment in the context of the financial statements as a whole.

The standard also makes clear that auditors can give an opinion on financial statements without resolving every uncertain issue. As a result, directors can issue prompt reports to shareholders without incurring a qualified opinion.

Hand-in-hand with this change goes the decision to include an explanatory paragraph that refers to any uncertainties that the auditor feels are 'fundamental'.

There are other additions to the auditor's report, too. Henceforth, there will have to be information on the responsibilities of the directors and auditors.

Bill Morrison, chairman of the APB, said the standard sought to achieve 'informative reporting within the current legislative obligation'. It would make auditors' reports more useful by requiring them to give opinions that enable a reader to assess whether inherent business uncertainties have been properly accounted for and disclosed.

The APB also issued a paper in which it said that besides setting standards it would be issuing practice notes giving guidance on application of standards to specific areas and bulletins informing auditors of new issues.

'At a time when monitoring the standards achieved in practice by auditors is of increasing importance, clarity as to what those standards entail is essential,' Mr Morrison said.