IAASB Meeting Highlights and Decisions December 2005 Contact: James Gunn, mailto:jamesgunn@ifac.org This summary of decisions of the International Auditing and Assurance Standards Board (IAASB) has been prepared for information purposes only. Except for approval of documents for public exposure and issuance of final Standards or Statements, decisions reported are tentative and reflect only the current status of projects. For more detailed information about IAASB projects, please refer to the project summaries under Current Projects. Experts The IAASB discussed issues and proposals presented by the task force addressing the revision of International Standard on Auditing (ISA) 620, Using the Work of an Expert. Topics addressed related primarily to scoping of the revised ISA, including whether the following “experts” should be covered: expert employees of the entity; auditing, accounting, and tax experts; and expert members of the engagement team. The IAASB also discussed whether a risk-based or rules-driven approach should be used. The IAASB asked that the task force consider its comments and present an initial draft of the proposed revised ISA 620 for its consideration. Communications The IAASB considered comments received on the exposure of the proposed revised ISA 260, The Auditor’s Communication with Those Charged with Governance, together with a revised draft of the proposed revised ISA. Topics addressed included: the treatment of communications in engagements to audit financial information other than general purpose financial statements; communications regarding corrected misstatements, management representations, and supplementary matters; confidentiality of communications; documentation; and matters discussed by the IAASB Consultative Advisory Group. The IAASB asked that the task force consider its comments and present a revised proposed ISA for approval for issue as an exposure draft under the Clarity drafting conventions at the March 2006 IAASB meeting. Related Parties The IAASB reviewed the proposed exposure draft of the revised ISA 550, Related Parties, prepared under the Clarity drafting conventions. Significant issues discussed included: the nature and extent of the auditor’s responsibilities where the applicable financial reporting framework does not establish related party accounting and disclosure requirements; the relevance of the related party definitions set out in International Accounting Standard 24; and the nature and extent of mandatory risk assessment procedures to identify related party relationships and transactions not previously identified or disclosed by management (including the nature and extent of the auditor’s work effort where the entity is controlled by a dominant party). The IAASB reviewed a revised draft of the proposed exposure draft of the revised ISA 550, reflecting the changes agreed during the earlier discussions, and unanimously approved it for issue. The closing date for comments was set as April 30, 2006. Group Audits The task force presented a revised and redrafted proposed ISA under the Clarity drafting conventions. Significant issues discussed included: full versus divided responsibility; definitions; acceptance and continuance as a group auditor; materiality; communications with other auditors; public sector perspective; and application of the Clarity drafting conventions. The IAASB asked the task force to present a revised draft for approval as a re-exposure draft at the next IAASB meeting. The IAASB also asked the task force to prepare a Basis for Conclusions document, reflecting the IAASB’s decisions on significant comments made by respondents to the exposure draft. Materiality The IAASB discussed a proposed ISA 320, Materiality in Planning and Performing an Audit, and a proposed ISA XXX, Evaluation of Misstatements Identified During the Audit, which reflect the task force’s consideration of the comments received on exposure. Significant matters discussed included: the auditor’s consideration of materiality determined by management; the definition of materiality; the use of percentages of benchmarks to determine materiality for the financial statements as a whole; materiality for particular classes of transactions, account balances and disclosures; the concept of tolerable error; the categorization of misstatements identified during the audit; and the auditor’s consideration of prior period misstatements. The IAASB asked the task force to present revised drafts of the proposed ISAs 320 and XXX, prepared under the Clarity drafting conventions, at a subsequent IAASB meeting. Due Process The IAASB unanimously approved a revised draft of its due process document. The due process was revised to conform to IFAC’s StandardSetting Public Interest Activity Committees’ Due Process and Working Procedures, which was approved by the international Public Interest Oversight Board in September 2005. Project Proposal The IAASB approved a project proposal to revise ISA 505, Confirmations. Next Meeting The next IAASB meeting will be held in Hong Kong, on March 6-10, 2006.