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FEE welcomes the manner in which the ED recognises the need for alignment with current developments in financial reporting. It is important that all disclosed information is relevant, reliable and presented in a comparable and understandable manner.
In FEE´s response to the Discussion Paper (DP) “The Evolving Nature of Financial Reporting: Disclosure and its Audit Implications” of June 2011, FEE welcomed the initiation of a thorough debate with all stakeholders on the fundamental issues concerning financial statement disclosures in recognition that developments in this area impact the readability, the understandability and the auditability of the financial statements as a whole. FEE agreed that it was time for the IAASB to carefully consider whether the ISAs provide the auditor with the necessary framework for the audit of disclosures and FEE commends the IAASB for tackling this issue.
However, in FEE´s opinion, the matter dealt with in this ED cannot be solved by the IAASB alone and it is essential for the IAASB to adopt a holistic collaborative approach to this matter, with other critical stakeholders such as the IASB, and address the matter in a more co-ordinated fashion. Simply observing each other’s efforts and dealing with the issue in parallel is unlikely to result in a satisfactory outcome.
FEE agrees with the IAASB’s decision not to address disclosures by way of a separate ISA. Although such an approach might emphasise its importance, FEE believes that the audit of disclosures is best addressed throughout the suite of ISAs. FEE also supports the IAASB’s view that, in general, most of these amendments are best served through changes to application guidance. The “Preliminary Staff Publication” is also a useful accompaniment to highlight the particular difficulties surrounding disclosures and provides helpful and focussed guidance. FEE would, therefore, support the issuance of this publication along with the revised standards.
Although FEE recognises the valuable work carried out by the IAASB to date, FEE is concerned as to the likely limited extent of the project’s success due to fundamental matters – namely materiality, the use of judgement in estimations and the evidence gathering in regard to certain disclosures – not being adequately addressed in this ED, as conceded by the IAASB itself. These key issues still need to be covered, and most likely in conjunction with other stakeholders such as the IASB.