|
|
Accountancy Europe is pleased to provide you with its comments on the IAASB DP on Fraud and Going Concern.
At Accountancy Europe, we have been working on the issues of fraud and going concern and recently issued two publications1 that include recommendations to strengthen this ecosystem. We therefore welcome that the IAASB has also identified the need to revisit the role of auditing standards in these two areas. We also invite the IAASB to consider recommendations set out in our publications noting that their scope is wider than the audit of financial statements and auditing standards.
Fraud and going concern are complex matters and there is no silver bullet solution for the issues at stake. To address them, we should adopt a holistic approach taking into account the relevant risks and the expectations of stakeholders. Only concerted efforts and commitment of all the key parties can achieve tangible results in the public interest.
There is no one-size-fits-all solution that can be offered by the financial statements audit. The world is constantly changing and so do the business environment, societies and public expectations. Auditors need to be agile to be able to respond to the needs of stakeholders and adapt their work according to evolving circumstances. At the same time stakeholders need to be alert to the facts that certain risks concerning both fraud and going concern cannot be eliminated, no matter how much work the auditor undertakes. Standards can support auditors by establishing a framework that allows for flexibility where necessary. To enhance agility and adaptability and to avoid a “tick the box” behaviour, the auditing framework should continue to be based on principles-based requirements and be reinforced by application material that provide guidance and examples for clarifying the requirements.
We agree with the IAASB that the audit expectation gap should be broken into the three components: the knowledge gap, the performance gap, and the evolution gap.
The knowledge gap seems to be the one where the IAASB can play a crucial role by clarifying key concepts and definitions, as well as what an audit can and cannot do (i.e., inherent limitations) through communication and education directed to all stakeholders. We note that for both fraud and going concern there are certain concepts which are commonly misinterpreted or understood differently by stakeholders.
We expect that the risk-based approach to quality management in audit firms, as described in the new set of quality standards released by the IAASB, as well as the recently revised ISA 315 that includes a more robust and consistent risk identification and assessment, will help narrowing the performance gap. Audit firms will demonstrate even more their commitment to quality.
The auditor’s role can be reconsidered and expanded as a response to the evolving expectations and thus responding to the evolution gap. The IAASB should consider and consult on (i) adapting the scope of the audit of financial statements and/or (ii) developing assurance standards for complementary engagements that auditors could undertake alongside the statutory audit.
For the evolution of auditor’s role, certain preconditions should be met as explained in our detailed responses below. The primary responsibility for fraud prevention and assessment of the entity’s going concern lies with the management and Those Charged with Governance (TCWG) of the entity. Hence, any expansion in the auditor’s work will need to be based on increased requirements for the audited entities.
In addition, the value of an audit is closely linked to its timeliness. The same is true for the information provided to the markets by the entities. Therefore, any evolution of reporting and auditing should not be at the expense of providing timely information to the public.
Finally, we believe that any changes to the current functioning of the financial reporting ecosystem, including changes linked to the audit purpose and scope, should be based on the outcome of a cost/benefit analysis and an impact assessment.....
1 Fraud: Recommendations to strengthen the financial reporting ecosystem; available at https://www.accountancyeurope.eu/publications/fraud-recommendations-to-strengthen-the-financial-reporting-ecosystem/
Going Concern: Recommendations to strengthen the financial reporting ecosystem; available at https://www.accountancyeurope.eu/publications/going-concern-recommendations-to-strengthen-the-financial-reporting-ecosystem/