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The EBA encourages the IAASB to consider professional scepticism as a matter of priority (at least on the same level as audit quality and group audits), as the EBA believes that it is fundamental to the public trust and confidence in financial reporting and it is also key in light of the audit of IFRS 9 Financial instruments (‘IFRS 9’), which will require even more than under the current incurred losses model of IAS 39 auditors to exercise a significant degree of professional judgment and scepticism.
Besides standard-setting, the EBA also encourages the IAASB to foster stricter application of the audit standards and recommend that the IAASB collaborates with audit oversight bodies, audit inspectors, International Forum of Independent Audit Regulators (‘IFIAR’) and the forthcoming Committee of European Auditing Oversight Bodies (‘CEAOB’) in the EU, in order to address and respond appropriately to the underlying reasons for the audit inspections’ findings.
Regarding the IAASB considerations for strengthening the requirements on quality control, the EBA welcomes the IAASB considerations mentioned in the Overview of the ITC since sound quality control enhances the quality of an audit. We would also welcome further analysis by the IAASB on whether a Quality Management Approach (‘QMA’) could be applied at the engagement level, as part of an audit process, such as the audit of accounting estimates, to enhance the audit quality of areas which are key in an audit, as acknowledged in the Overview of the ITC and the Invitation to Comment: Enhancing Audit Quality in the Public Interest: A focus on Professional Scepticism, Quality Control and Group Audits (‘ITC’).
The EBA would also welcome further clarifications and additional requirements in the relevant auditing standards on the role and responsibilities of the engagement partners and engagement quality control reviewers related to quality control, together with further clarifications and additional requirements related to the role and responsibilities of these individuals as well as the audit committees related to professional scepticism and group audits.
The EBA supports the IAASB considerations and efforts in addressing issues related to group audits, which can be challenging when they include entities within a group which are located in several jurisdictions outside the jurisdiction of the engagement partner. In addition, under the audit rotation requirements in the EU Regulatory framework, cases of audit engagements with groups and component entities audited by different audit firms may become more common in the future. Therefore, further enhancement of the related audit requirements should enhance robust and consistent application of the auditing standards in group audits.