Part 2Considering the Future of Audit Reports

Now that you have gained an understanding of the various types of audit reports, you will consider whether the information communicated in these reports is informative to various interest groups. The existing form is primarily a pass/fail model in which the auditor opines on whether the financial statements are fairly presented (pass) or are not fairly presented (fail) (McAllister and Bell 2011; PCAOB 2013). Using the background gained in the first part of this case, consider the following questions and record your responses to each item. These questions relate specifically to the content included in the standard unqualified report.

6. Regulators in other countries are beginning to propose and adopt similar changes to audit reports. For example, the International Auditing and Assurance Standards Board (IAASB) approved final standards to enhance the auditors report in January 2015 and these standards become effective for audits of financial statements with periods ending on or after December 15, 2016. The United Kingdom (U.K.) also adopted a new, principles- based auditing standard in 2013, and U.K. auditors issued their first reports under the new standard in early 2014. This change in the U.K. provides an interesting example of the trend to increase the amount of information provided in audit reports. To observe these changes, perform the following:

Find the 2014 Annual Report for Rolls-Royce Holdings plc. To do so, visit to the companys website (http://www.rolls-royce.com) and find the 2014 annual report. The financial statement date is December 31, 2014. Describe several pieces of information included in this audit report that are not provided in the audit report for U.S. public companies.

If you are an investor in Rolls-Royce Holdings plc, then do you feel more or less comfort with the underlying financial statements after reading the auditors opinion? Why?