International Standards on Auditing: Taking ISAs into the National Context

Prof. Arnold Schilder, IAASB Chairman

World Bank REPARIS Conference

Amsterdam

April 5, 2011

IAASB’s Role, Objectives and Structure

• Independent standard-setting board that serves the public interest by:

– Setting high-quality standards dealing with auditing, review, other assurance, quality control and related services

– Facilitating the convergence of national and international standards

• Contributes to enhanced audit quality throughout the world, and strengthened public confidence in financial reporting

Role and Objectives of the IAASB

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• IAASB:– Meets for a full week, four times per year

– Broad-based membership: 17 members, full-time Chair, Technical Advisors and three permanent observers with speaking rights

• Consultative Advisory Group– Meets twice per year, 30 Member Organizations

• Standard-Setting Process– Global consultation, transparent due process, open meetings and

oversight via the International Public Interest Oversight Board (PIOB)

IAASB Structure and Standard-Setting Process

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IAASB’s Role, Objectives and Structure

IAASB’s Role, Objectives and Structure

• Rigorous and transparent due process– Protects public interest and ensures global acceptance

• Global consultation and responsiveness– Dialogue with key stakeholders

National auditing standard-settersNational auditing standard-setters

Basel Committee, EC, Financial Stability Board, IAIS, Basel Committee, EC, Financial Stability Board, IAIS, IFIAR, IOSCO, World Bank IFIAR, IOSCO, World Bank

Investors and preparers (via IAASB CAG and outreach)Investors and preparers (via IAASB CAG and outreach)

Other key stakeholders: IASB, FEE, Forum of Firms, Other key stakeholders: IASB, FEE, Forum of Firms, ICGN, IFAC member bodies, PCAOB ICGN, IFAC member bodies, PCAOB

Developing High-Quality Pronouncements

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IAASB’s Role, Objectives and Structure

• International Standards on Auditing (ISAs)

• International Standards on Assurance Engagements (ISAEs)

• International Standards on Review Engagements (ISREs)

• International Standards on Related Services (ISRSs)

• International Auditing Practice Statements (IAPSs)

Developing High-Quality Pronouncements

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• A significant development in auditing standards internationally

• Redrafting of 36 ISAs and ISQC 1

• Greater clarity, understandability and consistency of application

– New structure, conventions and obligations

• Half of the ISAs fundamentally revised

– Strengthen the ‘thinking audit’

– Enhanced quality of performance in many areas

• Now effective! (from 2010 calendar year audits)

• Minimum 2 year moratorium on new standards

The Clarified ISAs

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Clarified ISAs

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ISAs

General Principles and

Responsibilities

Risk Assessment and Response to Assessed Risks

Audit Evidence

Using Work of Others

Audit Conclusions and

Reporting

Specialized Areas

ISA 200

ISA 210

ISA 220

ISA 230

ISA 240

ISA 250

ISA 260

ISA 265

ISA 300

ISA 315

ISA 320

ISA 330

ISA 402

ISA 450

ISA 500

ISA 501

ISA 505

ISA 510

ISA 520

ISA 530

ISA 540

ISA 550

ISA 560

ISA 570

ISA 580

ISA 600

ISA 610

ISA 620

ISA 700

ISA 705

ISA 706

ISA 710

ISA 720

ISA 800

ISA 805

ISA 810

Revised and Redrafted

Clarified ISAs

Redrafted only

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New

Post Clarity (2009 → ) revision of ISAs 610 and 720

Clarity Project: Legend

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• Principles-based and emphasize the use of professional judgment and professional skepticism

• More robust featuring strengthened requirements in key areas:

– Risk assessment (e.g., estimates and related parties)

– Materiality and its use in evaluating misstatements

– Audit evidence (e.g., confirmations and representations)

– Using the work of others (e.g., group audits and experts)

– Auditor reporting and communications (including with those charged with governance)

Key Changes from the Clarity Project

Clarified ISAs

Global Auditing Standards: Where Are We Now?

• International Organization of Securities Commissions (IOSCO)• Basel Committee on Banking Supervision• Financial Stability Board• International Organization of Supreme Audit Institutions (INTOSAI)• United Nations Conference on Trade and Development (UNCTAD)• World Bank• World Federation of Exchanges

Expressed support for Clarified ISAs:

Other uses of Clarified ISAs globally: • INTOSAI Congress (INCOSAI) through International Standards of

Supreme Audit Institutions (ISSAIs)• Top 22 global auditing networks’ methodologies align

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Clarified ISAs

Global Auditing Standards: Where Are We Now?

Europe:Albania, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, Georgia, Greece, Hungary, Iceland, Ireland, Kosovo, Latvia, Lithuania, Malta, Netherlands, Norway, Serbia, Slovakia, Slovenia, Sweden, Switzerland, Turkey, United Kingdom

Asia/ Pacific:Australia, Bangladesh, China, Hong Kong, India, Japan, Kazakhstan, Malaysia, Mongolia, Nepal, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Americas:Brazil, Canada, Guatemala, Guyana, Mexico, Nicaragua, Panama, Trinidad and Tobago, USA (private companies)

Africa/ Middle East:Botswana, Kenya, Lebanon, Lesotho, Malawi, Mauritius, Namibia, South Africa, Swaziland, Tanzania, Tunisia, Uganda, United Arab Emirates (Abu Dhabi and Dubai), Zambia, Zimbabwe

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Countries Using Clarified ISAs already, or Committed to Using them in the near future:

Clarified ISAs

• Support for ISA Adoption – Support from Professional Bodies, Firms, Public Authorities, Academics, Investors; mixed views preparers/companies

• Impact on SMEs/SMPs: “We must first avoid causing SMEs and small and medium audit firms additional cost …”

– IFAC’s “An Audit is an Audit” well-understood; IAASB Staff Publication on proportionality often quoted; SMP Committee Implementation Guides important; EDs for reviews/compilations: may be used by audit-exempt entities

• Governance: Need to emphasize independence, due process, transparency of the standard-setting process

– Governance and nominations; public interest; Investor participation – how can this be strengthened?

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EC Green Paper – ISA AdoptionAdoption and Implementation into the National Context

Adoption and Implementation into the National Context

• Dialogue between IAASB and audit regulators important:

– Interpretation of standards; importance of professional judgment

– Proportionate audit documentation

– Learning from inspections findings

• Regular contact between IAASB and IFIAR

– Plenary, working groups, ad hoc meetings

• Europe: from EGAOB to European Audit Inspection Group

– First meeting IAASB-EAIG June 2011 (and ad hoc)

Relationship with Audit Regulators

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Adoption and Implementation into the National Context

• Effective implementation key to realizing full benefits

• Need to fully adopt ISAs including relevant pronouncements; ISQC 1, Code of Ethics for Professional Accountants

• Understand and communicate how ISAs can be applied proportionately to the size and complexity of the entity

– Projects to assist SMEs/SMPs; Reviews and Compilations

• Practical implementation challenges not underestimated

– Education/training; audit methodologies; monitoring and enforcement

Key Success Factors

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• IAASB support

– IAASB Clarity Center (http://web.ifac.org/clarity-center/index)

– ISA modules (11 videos + slide packs re revised ISAs)

– IAASB Staff Alerts, Q&A and FAQs

– Clarity ISA Modules

– Implementation Monitoring Project

• IFAC SMP Committee:

– ISAs and Quality Control Guides

– IFAC Translation support

Implementation of Clarified ISAs

Adoption and Implementation into the National Context

“Robust audit is key to re-establishing trust and market confidence; it contributes to investor protection and reduces the cost of capital for companies”

EC Green Paper, October 2010

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http://www.iaasb.org