Communication With The SAS 58 Auditor’s Standard Report: An Exploratory Study

Abstract

In a field experiment, the authors examine whether three alternative versions of the auditor’s standard report communicate effectively the cognitive dimensions of understand-ability, engagement risk, and needed accommodation to a user group (investment and banking professionals) and an expert group (audit partners and managers). The study focuses on the mandated SAS 58 (AICPA 1988) three-paragraph auditor’s standard report (SR), the previously mandated two-paragraph auditor’s standard report (OSR) and a modified auditor’s standard report (MSR) more in harmony with the stated auditor’s responsibility for detecting fraud, as mandated by SAS 53 (AICPA 1988b) which was subsequently superceded by SAS 82 and SAS 99. The results indicate that both auditors and users are consistent in their belief that the SR represents an enhancement in understandability of the audit message over OSR, and that a format along the lines of MSR would not have represented an improvement over the SR format given the inconsistencies in ratings between auditors and users of the MSR (which contains explicit language relative to fraud). Specifically, auditors’ perception of engagement risk associated with the MSR is much higher than users’ perception and the demand for needed accommodation (additional information) is also greater for auditors than users. Overall, the results suggest that the ASB was effective in responding to the user needs with respect to the message communicated in the auditor’s report, a critical link in the financial information reporting process. This investigation has the potential to inform policy-making bodies concerned with adopting a report standard that fairly communicates the risks borne by both auditor and user groups.