IAASB Update

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International Auditing and Assurance Standards
Board

• IAASB Update

• Prof. Arnold Schilder, Chairman
• James Gunn, Technical Director

• CICPA
• Beijing, China

• 18 September 2009

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• Agenda

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

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Adoption and International Convergence

• Global Acceptance of ISAs

• 100 countries adopt or use ISAs in some form
• 23/25 worlds capital markets for foreign issuers
• IOSCO endorsement
• Support from World Bank, Basel Committee, World
  Federation of Exchanges, Financial Stability
  Board, public sector (INTOSAI), etc.
• Top 22 global networks methodologies aligned

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Adoption and International Convergence

• A Perspective on Adoption Convergence

• Stronger transparency and accountability
• Higher quality and consistency of audits
• Reduced cost of capital and other costs arising
  from differing standards
• Enhanced uniformity and effectiveness of
  regulatory systems platform for harmonization
• Facilitates efficient education and training
• IFAC Recommendations to G20 Adopt ISAs and
  support implementation of global standards

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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

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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

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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

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Clarity ISAs

• Some Highlights

• Basis for reliance and quality of audit evidence
• Audits of group financial statements
• Auditors experts
• External confirmations
• Written representations
• Materiality
• Communications and reporting
• Professional judgment

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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

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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, IFIAR and
  others
• Specific initiatives to support implementation

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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, QA, etc.
• ISA Modules

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Clarity Center www.ifac.org/clarity-center/index

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Clarity Center www.ifac.org/clarity-center/index

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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

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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 QA issued August 2009
• Explains proportionality of ISAs in SME context
• Emphasizes importance of professional judgment

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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 entitys
  activities/accounting

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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

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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

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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

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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

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• IAASB Current and Forward Agenda

• Continued development of the ISAs
• Development of alternatives to the audit
• Development of other assurance standards
• Other areas of public interest

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IAASB Current and Forward Agenda

• Continued Development of the ISAs

• Guidance on auditing complex financial
  instruments
• Briefing paper and revision of IAPS 1012
• Use of internal audit (revision of ISA 610)
• Auditors report
• Academic research on user perceptions
  consideration of implications for ISA 700
• Other information in documents containing audited
  financial information (revision of ISA 720)

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IAASB Current and Forward Agenda

• Alternatives to Audit 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
• Alternative services must be clearly
  distinguishable as to level of assurance, work
  effort and cost
• Communication to promote user understanding

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IAASB Current and Forward Agenda

• International Standards on Assurance Engagements
  (ISAEs)

• New ISAE 3402 Assurance Reports on Controls at a
  Third-Party Service Organization
• Concurrent initiative in the US to revise SAS 70
• Approval expected September 2009
• New ISAE Assurance on Greenhouse Gas Statements
• First IAASB project in the area of sustainability
  assurance
• Consultation plan under development

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IAASB Current and Forward Agenda

• International Standards on Assurance Engagements
  (ISAEs) (contd)

• New ISAE Pro-forma Financial Information
  included in Prospective Financial Information
• Exposure draft expected December 2009
• Revision ISAE 3000 Assurance Engagements Other
  Than Audits and Reviews of Financial Standards

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IAASB Current and Forward Agenda

• XBRL
• Addressing performance and reporting expectations
  of the auditor in connection with audited
  financial statements accompanied by XBRL data

• Rapid Response
• Development of a mechanism for responses to
  urgent issues

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

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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
• International Valuation Standards Committee
• IFIAR

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Resources

• www.iaasb.org
• IAASB Strategy and Work Program, 2009 2011
• Project timetables
• Meeting information and agenda material
• Project histories
• Exposure Drafts of Standards

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