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IAASB Update. Phil Cowperthwaite, Member, IAASB. SMP Forum Beijing, China. 28 October 2009. Agenda. Adoption and International Convergence The IAASB Clarity Project IAASB Current and Forward Agenda. Adoption and International Convergence. A Perspective on Adoption & Convergence.

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IAASB Update

Phil Cowperthwaite, Member, IAASB

SMP Forum

Beijing, China

28 October 2009

  • Adoption and International Convergence
  • The IAASB Clarity Project
  • IAASB Current and Forward Agenda
adoption and international convergence
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

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 project1
The IAASB Clarity Project


  • 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
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 isas1
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 isas2
Clarity ISAs


  • 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 isas3
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 isas4
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 isas5
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 isas6
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 isas7
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 isas8
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 isas9
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 isas10
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 isas11
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
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 agenda1
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 agenda2
IAASB Current and Forward Agenda

Impact Analysis

Analysis of impacts (costs, benefits, etc.) of proposed new or revised standards, as part of due process considerations

iaasb current and forward agenda3
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


  • IAASB Strategy and Work Program, 2009 – 2011
  • Project timetables
  • Meeting information and agenda material
  • Project histories
  • Exposure Drafts of Standards
IAASB Update

Phil Cowperthwaite, Member, IAASB

SMP Forum

Beijing, China

28 October 2009