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The EBA considers that the IAASB´s focus could improve the quality of disclosures in the financial statements. However, the EBA believes that some of the proposals could be developed further and some of the application material could be enhanced to requirements in order that there is a more consistent and robust audit of disclosures.
The EBA welcomes many of the proposed amendments in the ED, which place more emphasis on the audit of disclosures. Disclosures are an integral part of the financial statements of an entity and therefore deserve equal attention by auditors during the course of an audit. The EBA particularly welcomes the following:
- emphasis placed on considering disclosures earlier in the audit cycle (ISA 300 A12b);
- greater prominence to the relevant audit considerations when information is derived from systems or processes not part of the general ledger system (ISA 315 A89a);
- proposal to integrate the assertions for presentation within the definition of other assertions (ISA 315 A124);
- more examples of possible areas of material misstatement in disclosures (ISA 315 A128c);
- more guidance on what constitutes a misstatement such as omission of disclosures beyond what is specifically required by the framework which are necessary for fair presentation (ISA 450 A1).
Overall, the EBA supports the inclusion of greater emphasis on the consideration of disclosures throughout the ISAs.
As the IAASB acknowledges in the explanatory memorandum of the ED, enhancements to the quality of disclosures in financial statements require collaboration and cooperation between various stakeholders, including among others the IASB, which is currently undertaking the Disclosure Initiative project as well as a review of the Conceptual Framework and which might be relevant to these proposals. However, without ignoring the practical challenges that may arise, the EBA would welcome the amendment of ISA 500, in order to include more detailed requirements and/ or guidance on what constitutes ‘sufficient and appropriate evidence’ in relation to the audit of disclosures so that the audit of disclosures is given sufficient prominence compared to the other elements of financial statements.