Auditor's Reporting Obligations

Frederik Søndergaard Kjelkvist

Student thesis: Master thesis


The purpose of this thesis is, by analysing an auditor’s current reporting obligations to Management, shareholders and stakeholders of Danish companies, including public Entities such as the Danish Tax Administration and the State Prosecutor for Serious Economic and International Crime (SØIK), to identify possibilitiesto improve the relevance of auditors’reporting measured on a socio-economic level. The primary focus in this thesis is the auditor’s reporting obligations in relation to complex cases regarding taxes, indirect taxes and duties and fees. Auditor’s reporting obligations in Denmark are primarily set out in the Danish Act on Approved Auditors and Audit Firms, the Statutory Order on Audit Opinions as well as the Money Laundering Act. In addition, the typical reports provided by the auditor are defined in the International Standards of Auditing (the ISA’s). In thisthesis,the primary focus has been set on the auditor’s written communication to Management defined in ISA 260 and related ISA’s and the auditor’s obligation to file anonymous reports on suspected money laundering activities to SØIK. The results from the analysis shows, that the auditor’sresponse, when identifying a potential violation of the Danish Tax Legislation performed by an entity, depends on the level of confidence which the auditor has obtained, when evaluating whether a violation actually has occurred, whether Management or the Entity is liable in this regard and, if the entity or the relevant individual has obtained any temporary or permanent economic benefit from the potential violation. Regulation leaves only a little area of uncertainty as to whether auditors should report any potential violation of law, which the auditorsuspects meet the definition of money laundering. While the auditor’s response to such identified matters might be perceived as fairly obvious, and all matters thus should result in a description of the matter in the auditor’s opinion (emphasis of matter) and/or result in a report ofsuspected money laundering to SØIK, in reality this isfar from the case. While both auditors, company owners and authorities in general can agree that the current regulation and level of public guidelines asto which matters should be notified to public authorities is insufficient, no united recommendation, besides providing additional public guidelines, have been shared by the respondents of the primary analysis of this thesis. The general perception, however, is that auditors have a unique insight into the financial situation of companies, and thus auditors might help provide the public, especially the Danish Tax Administration, with relevant insights. Despite the legislation regarding auditor’s communication to shareholders and stakeholders is heavily based on international law, the analysis shows that some alterations, when designing and implementing the national law, are possible. Based hereon, the suggestions from this thesis call for additional guidance regarding which matters the public would like auditors to file anonymous reports on to SØIK. In addition, the Statutory Order on Audit Opinions as well as the Money Laundering Act ought to undergo minor alterations in order to implement additional recommendations, these including a twin-track reporting process to Management respectively SØIK to speed up the process of shutting down uncertain tax positions, as well as providing the public, especially the Danish Business Authority and the Tax Administration, with more insights to reports prepared by the auditor addressed to Management of Danish Entities. Ultimately, achieving more socio-economical relevant reports from auditors will require more guidance, alterations to current legislation as well as a change in the mindset of auditors, accepting that providing reportsto SØIK and publicly referring to reportsto Management over uncertain Tax positions, previously only reported to Management of the Entity, has come to be a part of the role as an auditor.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2021
Number of pages69