International Standards on Auditing
Author:
Anne Sykes
The Auditing Practice Board (APB), which is part of the Financial Reporting Council, prepares standards and guidance for auditing for use within the United Kingdom and Republic of Ireland has announced some major changes in auditing standards and guidelines over the next couple of years.
The APB is proposing to adopt International Standards on Auditing (ISAs) and has announced that a number of new ISAs will apply in the UK and ROI for audits of accounting periods commencing on or after 15 December 2004.
ISAs are issued by the International Auditing and Assurance Standards Board (IAASB). The IAASB functions as an independent standard setting body under the auspices of the International Federation of Accountants (IFAC). The mission of the IAASB is to establish high quality auditing, assurance, quality control and related services standards and to improve the uniformity of practice by professional accountants throughout the world, thereby strengthening public confidence in the global auditing profession and serving the public interest.
The IAASB has been undertaking a revision of ISAs and the statements to be adopted by the APB are the new revised ISAs (audit risk, fraud and quality control, 315, 330 and 240).
In addition the APB is proposing to adopt a number of additional statements, ISA(UK and Ireland) which will contain certain matters currently in SAS but not yet reflected in ISAs. As the IAASB revise and reissue the remaining ISAs these ISAs(UK and Ireland) should be withdrawn.
APB Timetable:
Standards adopted:
The ISAs relating to audit risk, fraud and quality control will apply in the UK and Ireland for audits of accounting periods commencing on or after 15 December 2004.
Exposure Drafts:
In addition the APB has also issued for public comment exposure drafts of a revised Statement of the Scope and Authority of APB Pronouncements, 28 proposed International Standards on Auditing (UK and Ireland) and an International Standard on Quality Control (UK and Ireland). When finalised, these standards will replace the APB’s existing Statements of Auditing Standards (SASs); it is intended that they should apply to audits of financial statements for periods commencing on or after 15 December 2004. Comments on these exposure drafts are due on these by 15 September 2004. The table below lists the new ISA (UK and Ireland) and the existing SASs.
EU
The European Commission is likely to require national standards to be replaced with ISAs within the next couple of years (2006?). This directive is likely to require that ISAs are adopted in their entirety and the only additional standards permitted with be specific company law requirements, these will probably be reflected in the ISA(UK and Ireland) statements issued by the APB.
What this means for auditors now
An implementation date of 15 December 2004 means accounting periods commencing on or after that date, ie for most companies that means accounting year end 31 December 2005. That translates to planning and interims autumn 2005 and this may mean upgrading audit programmes and software this time next year.
What will change?
The move to ISAs will not represent a fundamental change in the way in which firms do their audits but there are some changes. Many of the things suggested in ISAs are already considered to be best practice and will reflect what many good auditors do already. The ISAs that have been adopted (fraud, risk and quality control) are the major areas with changes. There are a few more mandatory procedures, particularly in the planning stages of the audit, more documentation and a very thorough risk assessment process.
What the ICAI is doing
We will have our new ISA website up and running soon. This will give members access to the full text of the new standards. The APB ISA(UK and Ireland) exposure drafts will be available for download from this page. The full text of the existing ISAs is currently available to download from IFAC [www.ifac.org].
It is intended to replace SCAPS with a new product this year which will be ISA compliant early next year in time for audits under ISAs.
The Auditing Standards Committee (ASC) of ICAI has made submissions to the IAASB on the exposure drafts of the new standards and will continue to do this as more standards are exposed. In addition the APB has been seeking the views of the Irish profession on their exposure drafts and members of the ASC have been involved in discussions with the UK members of the IAASB board. This way the concerns of the profession here have been brought to the attention of the standard setter.
A key area of change is fraud and the ICAI is publishing a document which discusses the issues and provides an opportunity for Irish auditors to consider how best to plan the transition to the international standards in one of the more critical areas of auditing.