19 July 2013

IAASB reports on findings from post-implementation review of the clarified ISAs

The IAASB published its Post-Implementation Review, a Report that highlights the results of the IAASB's efforts to learn whether the clarified ISAs are being consistently understood and implemented in a way that achieves the IAASB's goals in clarifying and revising them.

The Report summarises feedback from those most directly involved in the audit process in jurisdictions that have implemented the clarified ISAs. It describes the IAASB’s process in summarising the comments and identifies the main themes that have emerged.

“I am pleased to note the many informative and useful comments received in response to the post-implementation review”, said IAASB chairman Prof Arnold Schilder. “The IAASB issued the clarified ISAs in 2009 as an essential input to audit quality, and the IAASB is committed to their continuous improvement. The Report, therefore, is an important input to the IAASB’s planning process, both in the short term and in the context of its 2015–2019 strategy deliberations.”

Input was received from independent audit inspection bodies, other regulators, and audit committee members, and from the larger accounting firms, smaller practices, and IFAC member bodies.

The post-implementation review is the second phase of the IAASB’s efforts to monitor the implementation of the clarified ISAs. The report on the first phase of IAASB’s work, undertaken in 2009 and 2010, was published in November 2010.

In providing their feedback, respondents were asked to share their views on a list of key areas of focus for the IAASB, including areas of consistency, effectiveness and efficiency. However, there was not a defined set of questions and respondents were free to present their views on any topics. A wide range of comments were received, some of which specifically addressed the key areas of focus, but the majority did not.

While comments of a general nature were received, the vast majority of comments were related to individual ISAs and included areas where the respondents had the view that changes to individual ISAs are needed. The level of detail in the written responses varied greatly. Some letters focused on more strategic issues, while others provided very detailed points on the requirements and application material.

Some of the comments from audit inspection bodies arose from concerns in audits they had inspected. Such concerns may relate to deficiencies in the ISAs, but could also be the result of auditors not applying the ISAs appropriately for a variety of reasons.

Improvements in ISAs

Some practitioners commented that the IAASB had achieved its goals in revising the ISAs and a few others reported that the clarification exercise had been well-received by auditors.

Several respondents had the view that the clarified ISAs are clear and understandable and one accounting firm noted that it was a significant improvement on the ISAs that preceded them.

A few respondents noted that the clarified ISAs helped auditors to better focus on areas of risk.

Global harmonisation in audit quality

While it is accepted that a common framework of auditing standards is beneficial to audit quality on a global basis, a few accounting firms cautioned against assuming that the ISAs would automatically result in harmonisation in audit quality, given differences in culture and the stage of development of the auditing profession in different jurisdictions.

A few respondents noted the need for implementation support and training for accounting firms, especially smaller firms, to implement the clarified ISAs efficiently. They noted the role of NSS and IFAC member bodies in this regard, and that efforts will vary, in part, with the size of the country and the resources available.

Consistency

A few accounting firms commented that the clarified ISAs are being applied consistently within their firms, but noted that training, additional guidance, methodology and technical support are essential to achieve this. However, a regulator commented that it is concerned about inconsistency of interpretation within accounting firms. A few respondents questioned whether audit regulators interpreted the standards in the same way as accounting firms. One accounting firm suggested that there should be more active liaison between the IAASB and audit regulators.

It was also noted that the extent to which the standards are applied consistently within a country depends on the nature and extent of national coordination, including national training provided, and the approach of audit regulators.

A few respondents expressed doubt that the clarified ISAs are interpreted consistently across countries and are concerned about differences that may arise on translation. One accounting firm observed that this needs to be addressed through increased implementation support.

Specificity

There were differing views on whether the right balance has been achieved between principles and rules in the ISAs. Audit inspection bodies and other regulators called for additional requirements in a number of the ISAs. Others took the view that, while clarification has helped auditors to understand what they need to do, this had resulted in too many overly detailed requirements, especially for smaller audits. An IFAC member body took the view that the clarified ISAs are too long and, in some cases, over-engineered.

Many respondents, including accounting firms, called for additional guidance in specific areas. An IFAC member body agreed that more guidance is needed but considered that it should be non-mandatory and therefore not included in the ISAs.

Revisions to the format of the ISAs

While there was support for the concept of articulating an objective for each ISA, a few respondents did not agree with the way this had been executed in the ISAs, noting that the objectives are merely a summary of the requirements and added little value. One respondent doubted whether the objectives are used in practice.

There were mixed views on whether the separation of the requirements from the application and other explanatory material was beneficial. Some found that this added to clarity, but others had the view that it made the standards harder to read. A few respondents reported different views on this within the same organisation. One accounting firm suggested that the IAASB should explore the use of information technology (IT) to make it easier to read the guidance alongside the requirements.

Increase in volume of documentation

Some of the concerns expressed by audit inspection bodies and other regulators related to inadequate audit documentation. However, several respondents had the view that the clarified ISAs had led to an unnecessary increase in the volume of audit documentation– especially for very small companies. While a few respondents had the view that additional documentation clarified the auditor’s thought process, some had the view that the documentation requirements are excessive and led to a compliance mentality.

Press release

Report

© IFAC