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FEE highlights two major issues linked to the ED:
FEE's main comments on the ED are summarised below:
1. Going concern
FEE fully supports the principles underlying the proposed requirement for explicit reporting of the auditor’s conclusions that are only implicit under the current ISA 570, but has some concerns with the detailed proposed changes to ISA 570.
In particular, according to FEE´s analysis, the level of detail may be excessive in those cases where there are no specific going concern issues. Furthermore, the proposed wording on responsibilities blurs the respective responsibilities of management and auditors and, therefore, needs to be reconsidered. FEE believes that the audit report should not become an original source of information about the entity, especially about going concern assumptions.
2. Content of Key Audit Matters (KAM) paragraphs
More guidance is needed to inform the auditor’s consideration of what should be included as a KAM and what would be in the description of a KAM. It is important that there is consistency in its application and that users obtain useful information. FEE believes that users will obtain more insight from information on the audit approach undertaken in response to a KAM and the key audit findings, in particular on aspects of information reported in the financial statements. In addition, the inclusion of a clear reference to the related disclosure in the financial statements will enhance the users’ understanding.
As far as issues related to material uncertainties and going concern, there should be a clear requirement that they should be included as a KAM if the definition of a KAM is met. However, FEE believes that the going concern KAM should be included in the going concern section of the auditor’s report.
Lastly, FEE notes that there is no question dedicated to the scope of the proposal other than its application to listed entities. FEE appreciates that this is a matter for national regulation to prescribe; however, FEE is aware that some challenge the usefulness of KAM for small listed entities, whilst others would prefer the standard to apply to all audits.
3. KAM on a voluntary basis
FEE agrees that it is sensible to foresee the opportunity to disclose KAM on a voluntary basis. Nevertheless, while thinking about how this would work in practice, FEE concludes that due consideration should be given to the need for an appropriate mechanism to prevent the possibility for the entity to only apply KAM voluntarily when it is convenient (‘pick and choose’).
FEE considers these IAASB proposals as an experiment, and that time will be needed to adapt and develop best practice.