Invitation to Comment
Financial Reporting Council
July 2015
FRC Invitation to Comment on IAASB
Exposure Draft (July 2015)
Proposed Amendments to the IAASB’s
International Standards – Responding to NonCompliance with Laws and Regulations
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FRC Invitation to Comment on IAASB Exposure Draft (July 2015):
Proposed Amendments to the IAASB’s International Standards –
Responding to Non-Compliance with Laws and Regulations
Background
1. The International Auditing and Assurance Standards Board (IAASB) has recently exposed
proposed limited amendments to several IAASB International Standards in relation to the
International Ethics Standards Board for Accountants’ (IESBA’s) revised exposure draft (ReED), Responding to Non-Compliance with Laws and Regulations.1
2. In August 2012 IESBA released an ED, Responding to a Suspected Illegal Act.2 The ED
proposed enhancements to the IESBA Code of Ethics for Professional Accountants (IESBA
Code) dealing with the professional accountants’3 response in situations where they come
across an act or suspected act of non-compliance with laws and regulations (NOCLAR). Such
an act may have been committed or may be about to be committed by the client or employer,
or by those charged with governance (TCWG), management or employees of the client or
employer.
3. IESBA revised their proposals following stakeholder feedback, and in May 2015 issued the
Re-ED. Comments on the Re-ED have been requested by 4 September 2015. IESBA is also
undertaking a project, due to be completed by the end of 2016, to restructure the IESBA Code
in order to improve the clarity and usability of the Code. IESBA are aiming to close off the
proposed NOCLAR standard under its extant drafting conventions (termed a “close-off
document”), with the intention of restructuring the close-off document in accordance with the
new drafting conventions of the restructured IESBA Code once they are finalised.
4. The IAASB believes that it is in the public interest that the IAASB International Standards and
the IESBA Code “operate in concert”. The IAASB further believes that their standards should
not undermine or contradict any enhancements that will be made to the IESBA Code, either
through inconsistencies or through failing to draw appropriate attention to the revised
requirements in the IESBA Code. Accordingly, the IAASB ED includes proposed limited
amendments to the ISAs and ISQC1 that the IAASB believes are necessary to resolve any
actual or perceived inconsistencies or to clarify and emphasise key aspects of the IESBA
NOCLAR proposals.
5. The Appendix highlights the main reasons for the proposed limited amendments to the
IAASB International Standards and those affected.
6. Further details of the proposed changes and an overview of the matters addressed by
the IAASB in their consideration are presented in the IAASB’s Exposure Draft which can
be downloaded from the IAASB’s website4.
Invitation for Additional Input
7. Notwithstanding that consultations undertaken as part of developing the IAASB’s current
Strategy and Work Plan had not demonstrated that ISA 250 warranted immediate revision,
the IAASB is of the view that there is benefit in soliciting stakeholders’ views as to whether
there is merit in exploring other aspects of ISA 250 where further improvements may need
to be considered in due course. The IAASB notes that if respondents are of the view that a
more fulsome review of ISA 250 would be beneficial in due course, this would be considered
through their normal consultation process on future Work Plans.
1
http://www.ifac.org/publications‐resources/responding‐non‐compliance‐laws‐regulations 2 https://www.ifac.org/publications‐resources/responding‐suspected‐illegal‐act. The FRC response to that consultation paper can be found by following this link 3 Professional accountant includes an auditor or an assurance practitioner.
4
http://www.ifac.org/system/files/publications/files/IAASB-Exposure-Draft-Proposed-NOCLAR-Amendments_0.pdf
Financial Reporting Council 3
8. The IAASB includes examples5 of matters where further consideration may be viewed as
beneficial in the exposure draft. For example, whether the existing distinction between the
types of laws and regulations and the different levels of work effort applied to each warrants
further investigation or revision.
9. Further details on the IAASB’s invitation for additional input can be found in paragraphs 14
to 18 of the explanatory memorandum presented in the IAASB’s Exposure Draft.
Responding to the FRC
10. The FRC welcomes comments on the IAASB’s Exposure Draft to assist the FRC in
developing a response to the IAASB and, in due course, to assist the FRC in developing
proposals to adopt the proposed changes to update the corresponding ISAs (UK and
Ireland) and ISQC (UK and Ireland) 1 when the changes to the IAASB International
Standards are finalised. In general, the FRC seeks to base the ISAs (UK and Ireland) and
ISQC (UK and Ireland) 1 on the standards issued by the IAASB, where necessary, subject
to augmenting the standards to address specific UK and Ireland legal and regulatory
requirements and other matters that are appropriate in the UK and Ireland national
legislative, cultural and business context.
11. In particular, the FRC welcomes comments on the following:
a) The questions posed by the IAASB which are set out on page 8 of the Exposure Draft.
b) Whether and, if so, how the FRC should adopt the proposed changes (assuming
they were to be issued as final standards by the IAASB) through amendment to the
ISAs (UK and Ireland).
c) Whether a more fulsome review of ISA 250 would be beneficial in due course, including
those matters that respondents believe need to be considered in any future revision of
ISA 250.
To assist in developing its response to the IAASB, the FRC would welcome comments from
interested parties on the Exposure Draft by 19 September 2015. Comments, preferably in
an electronic form that facilitates “copy and paste”, may be sent by e-mail to
aat@frc.org.uk.
If this is not possible, please send written comments to:
Josephine Jackson
Audit and Assurance Team
Financial Reporting Council
125 London Wall
LONDON EC2Y 5AS
Interested parties are also encouraged to comment on the Exposure Draft directly to the
IAASB before its deadline for comments.
5
Paragraph 16 of the Explanatory Memorandum 4 FRC Invitation to Comment on IAASB Exposure Draft (July 2015)
Appendix
Nature of the Proposed Limited Amendments—International Standards Affected
A summary of the proposed amendments to the IAASB’s International Standards is set out in
the table below.
Nature of proposed limited amendments
Amendments to reflect changes to the auditor’s duty
of confidentiality, particularly the legal or ethical duty
or right to disclose identified or suspected NOCLAR
to an appropriate authority, set out in the IESBA’s
NOCLAR proposals.
For example, proposed amendments to certain
paragraphs in the International Standards to replace
a generic term such as “responsibility” (i.e. “the
auditor shall determine whether the auditor has a
responsibility to report the identified or suspected
NOCLAR ..”) with a more specific phrase (“legal or
ethical duty or right”) to give appropriate emphasis to
the proposed change in the IESBA Code.
New guidance to emphasise the implications of the
IESBA’s NOCLAR proposals on the auditors’
responsibilities under ISA 250.
International Standards
Affected







ISA 2406 paragraph 43
ISA 240 paragraph A65
ISA 2507 paragraph 28
ISA 250 paragraph A19
ISQC18 paragraph A56
ISRE 24009 paragraph A92
ISAE 340210 paragraph A53
 ISA 250 paragraph A12a
 ISA 250 paragraph A17
 ISA 250 paragraph A18a
For example, if the auditor becomes aware of
NOCLAR that the auditor is required to address, such
non-compliance is relevant to the auditor’s
responsibilities in accordance with ISA 250
paragraphs 18 to 21. (E.g. such non-compliance may
cause the auditor to evaluate the integrity of
management and, when appropriate, those charged
with governance, even if the non-compliance does not
have a direct material effect on the financial
statements).
Amendments that draw attention to key aspects of the
IESBA’s NOCLAR proposals.
 ISA 240 paragraph 8a
 ISA 250 paragraph 8a
For example, auditors may have additional
responsibilities under relevant ethical requirements
regarding an entity’s NOCLAR. Complying with those
additional responsibilities may provide further
information that is relevant to the auditor’s work in
accordance with the ISAs.
6
ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements 7
ISA 250, Consideration of Laws and Regulations in an Audit of Financial Statements 8
ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements
9
ISRE 2400 (Revised), Engagements to Review Historical Financial Statements 10
ISAE 3402, Assurance Reports on Controls at a Service Organization Financial Reporting Council 5
Nature of proposed limited amendments
International Standards
Affected
New guidance that highlights a requirement in the
IESBA’s NOCLAR proposals that, in the case of
an audit of financial statements, a professional
accountant shall request the existing accountant
to provide known information regarding any facts
or circumstances that, in the existing
accountant’s opinion, the proposed accountant
needs to be aware of before deciding whether to
accept the engagement. The term “predecessor
auditor” is used instead of “existing accountant”
to be consistent with extant terminology in the
ISAs.
 ISA 220 paragraph A8a
New guidance to recognize that laws or regulations
may prohibit alerting (“tipping off”) the entity when, for
example, the auditor is required to report a NOCLAR
to an appropriate authority pursuant to money
laundering legislation.



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Other changes, such as additional examples,
explanatory material, or alignment of phraseology,
which the IAASB believes would significantly clarify
the application of its International Standards in light of
the IESBA’s NOCLAR proposals.
 ISA 250 paragraph A5a
 ISA 250 paragraph A16
 ISA 250 paragraph 5
For example, the addition of examples of categories
of laws and regulations (e.g. Securities markets and
trading laws and regulations) drawn from the IESBA
NOCLAR Re-ED.
11
ISA 260 (Revised), Communication with Those Charged with Governance
12
ISA 450, Evaluation of Misstatements Identified during the Audit 6 FRC Invitation to Comment on IAASB Exposure Draft (July 2015)
ISA 240 paragraph A59A
ISA 250 paragraph A15
ISA 26011 paragraph 7
ISA 45012 paragraph A8
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