International Auditing and Assurance Standards
Board
IAASB Update
Phil Cowperthwaite, Member, IAASB
SMP Forum
Beijing, China
28 October 2009
1
Agenda
• Adoption and International Convergence
• The IAASB Clarity Project
• IAASB Current and Forward Agenda
Adoption and International Convergence
A Perspective on Adoption & Convergence
• 100+ countries adopt or use ISAs in some form
• Stronger transparency and accountability
– Higher quality and consistency of audits
– Reduced cost of capital and other costs arising from
differing standards
• Facilitates efficient education and training
The IAASB Clarity Project
The IAASB Clarity Project
• Key aims
– Understandability of ISAs, and thereby their
consistent application
– Facilitate convergence
• Completed March 2009
• Suite of 36 ISAs and ISQC 1
– Effective for audits of financial statements for
periods beginning on or after Dec. 15, 2009
The IAASB Clarity Project
Outcome
• New structure and conventions
– Objective, definitions, requirements and
guidance provided in separate sections, to
improve readability
– Requirements and guidance revisited to eliminate
any ambiguity about what is required of auditors
• Nearly half of 36 ISAs fundamentally revised
– New requirements and guidance that aim to
improve practice in a variety of respects
Clarity ISAs
Some Highlights
• Objectives and obligation for their use
– Use to evaluate whether more needs to be done;
Standards cannot anticipate all possibilities
– Strengthen the ‘thinking audit’
• Risk assessment and evidence gathering
– Estimates and fair values
– Related parties
– Service organizations
Clarity ISAs
Some Highlights for SMPs
• Engagement acceptance and continuance (ISA 210)
• Fraud and error (ISA 240)
• Communications
• Planning (ISA 300)
• Risk assessment and response (ISAs 315 and 330)
• Communications (ISAs 260 and 265)
• Reporting (ISAs 700, 705, 800 and 805)
Clarity ISAs
Implications
• Successful implementation essential to realizing
full benefits of Clarity ISAs
• Impacts on
– National standards/legislation and guidance
– Audit methodologies, programs and manuals
– Translation and training programs
– Education curriculums
Clarity ISAs
How is IAASB Helping Deal with Challenges?
• Broad membership of IAASB (incl. Mr. Jianhua
Tang)
• Working in partnership with national auditing
standard setters
– CICPA is a key participant
• Continual dialogue with stakeholders
– IAASB Consultative Advisory Group and others
• Specific initiatives to support implementation
Clarity ISAs
IAASB Support
• Moratorium on new ISAs for next two years
• Translation support, through IFAC resources
• IAASB Clarity Center
– Background and information on Clarity Project
– Individual ISAs and Basis of Conclusions
– Staff Updates, Alerts, FAQs, Q&A, etc.
– ISA Modules
Clarity Center: www.ifac.org/clarity-center/index
Clarity ISAs
ISA Modules
• Short videos and supporting slides
– Main thrust of revised ISA and significant changes
– First release Q4 2009, free of charge from Center
Clarity ISAs
Proportionality of Application of the ISAs
• Concern in some quarters about:
– Applicability of ISAs to smaller audits
– Audit documentation burden
– Undue inspection requirements
• IAASB Staff Q&A issued August 2009
– Explains proportionality of ISAs in SME context
– Emphasizes importance of professional judgment
Clarity ISAs
Proportionality of Application of the ISAs
• Application of ISAs designed to be proportionate
– Proportionate to size, level of complexity, nature of
entity
– Proportionality ≠ modification of requirements
• Differences between SMEs and larger entities
recognized by ISAs
– Not every audit needs to be performed the same way
– Audit approach will vary with circumstances
(simpler/more complex)
– Work effort affected by entity’s activities/accounting
Clarity ISAs
How do ISAs Demonstrate Proportionality?
• Through the requirements, e.g.
– ISA 260, where management = TCWG
– ISA 315, absence of formal risk assessment process
– ISA 540, choice of responses to assessed risks
• Through the application material
– Many considerations specific to smaller entities
Clarity ISAs
Compliance with All ISAs?
• Basic obligation in the ISAs
– Comply with all ISAs relevant to the audit
• When can compliance with ISAs be claimed?
– Only when all relevant ISAs have been complied with
• However, not all ISAs may be relevant in an SME
audit, e.g.
– ISA 402, if SME does not use a service organization
– ISA 600, if SME audit is not a group audit
– ISA 610, if SME has no internal audit function
Clarity ISAs
Compliance with All Requirements?
• Even if an ISA is relevant, not all its requirements
may be relevant
– Conditional requirements need not be applied if
conditions do not exist
• Examples
– Engagement team discussion
– Performing substantive and other follow-up procedures
in context of unidentified related parties
– Determining whether material uncertainty exists in
context of going concern
Clarity ISAs
Documentation Requirements
• Appropriate documentation need not be burdensome
• Documentation of significant professional
judgments helps to reinforce their quality
• Application designed to be proportionate, efficient
and effective
– Experienced auditor test
– Requires professional judgment, not checklist approach
– Helpful illustrations of how to apply requirements
IAASB Current and Forward Agenda
• Continued development of the ISAs
• Development of a full suite of reporting services
• Development of other assurance standards
• Other areas of public interest
IAASB Current and Forward Agenda
Reviews & Compilations
• ISRE 2400 and ISRS 4410 are increasingly relevant
in meeting needs of those entities exempt from
statutory audit requirements
• Project approved March 2009; IAASB progressing
discussion of issues
• Project considerations
– Review and compilation services must be clearly
distinguishable as to level of assurance, work effort
and cost
– Communication to promote user understanding
IAASB Current and Forward Agenda
Monitoring Implementation of the ISAs
• Monitoring experiences of implementation of the
clarified ISAs by countries and firms
• Post-implementation review of the clarified ISAs
IAASB Current and Forward Agenda
Analysis of impacts (costs, benefits, etc.) of proposed new or
revised standards, as part of due process considerations
IAASB Current and Forward Agenda
Initiatives in the Current Environment
• Staff Audit Practice Alerts
– Auditing Fair Value Accounting Estimates
(October 2008)
– Going Concern (January 2009)
– External Confirmations (forthcoming Fall 2009)
• Liaison activity with others
– International Accounting Standards Board
Resources
www.iaasb.org
• IAASB Strategy and Work Program, 2009 – 2011
• Project timetables
• Meeting information and agenda material
• Project histories
• Exposure Drafts of Standards
International Auditing and Assurance Standards
Board
IAASB Update
Phil Cowperthwaite, Member, IAASB
SMP Forum
Beijing, China
28 October 2009