March 12, 2009
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This issue of the IAASB eNews focuses exclusively on the newly completed Clarity Project.
In This Issue:
- IAASB Completes its Clarity Project
- Effective Date of the Clarified ISAs
- The Benefits
- New Structure and Other Improvements
- The Role of ISA 200
- New Clarity Center Established on IFAC Website
1. IAASB Completes its Clarity Project
The IAASB has completed its Clarity Project, in which all of the Board's International Standards on Auditing (ISAs) and its International Standard on Quality Control (ISQC) 1 have been reviewed and redrafted in a new "clarified" style that makes the standards easier to understand, translate, and implement. These standards will also significantly advance the process of global convergence and enhance the quality and uniformity of practice in audits worldwide.
2. Effective Date of the Clarified ISAs
The standards will come into effect for audits of financial statements for periods beginning on or after December 15, 2009. All those with responsibilities relating to financial statement audits should consider implementation issues as soon as practicable and set in motion plans to update audit methodologies and training programs in advance of the effective date.
3. The Benefits
The clarified ISAs will strengthen audit practice in a number of key areas, such as:
- Communication with those charged with governance;
- Risk assessment, and the gathering and evaluation of audit evidence in relation to accounting estimates (including fair value estimates) and related party relationships and transactions; and
- The use of the work of others, such as an auditor's expert or other auditors in the context of audits of group financial statements.
4. New Structure and Other Improvements
The final set of clarified standards includes:
- One new ISA on communicating deficiencies in internal control;
- 16 ISAs containing new and revised requirements;
- 19 ISAs that have been redrafted only to reflect the new Clarity style; and
- One ISQC redrafted to reflect the new Clarity style.
Each standard now clearly identifies the objective of the auditor in the audit area addressed. One of the main goals of the IAASB in redrafting its standards was to eliminate any possible ambiguity about the requirements an auditor needs to fulfill; as a result, the objectives in each ISA are now supported by clearly stated requirements designed to enhance consistency of practice. In all cases, requirements are expressed by the phrase "the auditor shall."
The clarified standards also have a new structure, in which information is presented in separate sections: Introduction, Objective, Definitions, Requirements, and Application and Other Explanatory Material. This restructuring, in addition to the other drafting enhancements, improves the readability and understandability of the standards.
Thirdly, specific groups of entities are addressed. Users can now find considerations specific to small- and medium-sized entities (SMEs) and public sector entities in the standards themselves. These considerations are highlighted in the Application and Other Explanatory Material section of the ISAs.
5. The Role of ISA 200
Auditors should look to ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing, for assistance in understanding the purpose and scope of an audit. This ISA sets out how the objectives, requirements, and guidance in all ISAs are to be understood.
Specifically, ISA 200 sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the auditor to meet those objectives. It also explains the scope, authority, and structure of the ISAs, and includes requirements establishing the general responsibilities of the auditor applicable in all audits, including the obligation to comply with the ISAs. ISA 200 also introduces new guidance in relation to professional skepticism, professional judgment, the implications of the inherent limitations of an audit, and other matters relevant to the application of the ISAs.
ISA 200 requires the auditor to have an understanding of the entire text of an ISA, including its application and other explanatory material, to understand its objectives and to apply its requirements properly.
6. New Clarity Center Established on IFAC Website
To help with the implementation of the new ISAs, IFAC has developed an IAASB Clarity Center (http://web.ifac.org/clarity-center/index). The materials available in the Clarity Center include:
- The complete set of the clarified standards, marked to show changes, as a result of a consistency review of all the standards, from the earlier versions of the standards that were released following the Public Interest Oversight Board's approval of due process;
- Background information on the Clarity Project;
- A discussion of the new structure of the ISAs;
- Staff-prepared Basis for Conclusions for each standard, which provides a discussion of the main comments received on the exposure drafts and the IAASB's conclusions regarding these comments in developing the final standard; and
- Frequently asked questions about the clarified standards.
In addition, next month, the IAASB plans to launch the first in a series of ISA modules highlighting key changes in some of the more significantly revised standards. The IAASB will also publish all of the clarified standards in IFAC's 2009 Handbook of International Standards on Auditing and Quality Control in April 2009.
The IAASB hopes these resources are helpful and welcomes any feedback (KathleenHealy@ifac.org).
For more information about any of the items mentioned above or other information about IFAC, please contact communications@ifac.org.
About the IAASB and IFAC
The objective of the IAASB, an independent standard-setting board under the auspices of IFAC, is to serve the public interest by setting high-quality auditing and assurance standards and by facilitating the convergence of international and national standards, thereby enhancing the quality and uniformity of practice throughout the world and strengthening public confidence in the global auditing and assurance profession. The Public Interest Oversight Board oversees the activities of the IAASB and, as one element of that oversight, establishes its due process and working procedures.
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 157 members and associates in 122 countries and jurisdictions, representing more than 2.5 million accountants in public practice, education, government service, industry, and commerce. Through its independent standard-setting boards, IFAC sets international ethics, auditing and assurance, education, and public sector accounting standards. It also issues guidance to encourage high-quality performance by professional accountants in business.