Track B: Future IAASB Projects for SMPs
Phil Cowperthwaite, IAASB Member
IFAC SMP Forum 2011
Istanbul, Turkey
21 March 2011
To obtain participants’ views about:
•Current IAASB Standards and tools to assist SMPs
in implementing the standards in the SME
environment
•Current IAASB activities, including standards
under development
•Future IAASB direction, in the context of the
proposed IAASB Strategy and Work Program for
2012–2014
Session Objectives
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• Standard-setting relevant to SMEs
– Reviews and Compilations in progress
– No new or revised ISAs to be effective until 2013 or later
• Other projects of particular relevance to SMEs
– Tools to support implementation of the clarified ISAs
– ISA implementation monitoring project
– Audit quality (effectiveness and efficiency)
– Auditor reporting
Current IAASB Activities Relevant to SMPs
Session Objectives
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• Effective implementation is key to realizing full
benefits of Clarified ISAs
• Some view this as a particular challenge to audits of
SMEs:
– Applicability of ISAs to smaller audits
– Audit documentation burden
– Inspection requirements
• Ensuring the applicability of the ISAs to SME
audits is a core objective of the IAASB
Applying the ISAs in SME Audits
Clarified ISAs and SMEs
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Clarified ISAs and SMEs
• ISAs recognize there are differences between audits of SMEs
and those of large entities
– Audit approach varies with circumstances (e.g., simpler vs.
more complex types of entity)
• Requirements do not usually specify audit procedures
– Professional judgment is needed to determine procedures
• Application of ISAs, including documentation requirements,
designed to be proportionate in view of size, nature and
complexity of audited entities
– Proportionality ≠ modification of requirements
• ISA Staff Q&A issued August 2009
Proportional Application of the ISAs
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• ISA Modules – 12 in total
– Videos and slide decks to highlight key areas of revision within
the ISAs
– “The Clarified ISAs, Audit Documentation, and SME Audit
Considerations” particularly relevant
• IAASB Clarity Center (www.iaasb.org/clarity-center)
• ISA Implementation Monitoring
• IFAC SMP Committee – Guides on ISAs and Quality
Control
• Links to URLs provided for reference at the end of this
presentation
Implementation Support Activities and Messages
6
Clarified ISAs and SMEs
• Phase 1 report issued November 2010 acknowledges need for
SMP input
• Runs from October 2010 to December 2012 with the
assistance of National Auditing Standard Setters (NSS) in each
country:
– 14 countries invited to participate with a wide variety of regions,
languages, stage of development represented
– Six firms per country selected by NSS
– SMP Committee input to survey tool
• Report Q4 2012
SMP Survey about ISA Implementation
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Clarified ISAs and SMEs
• How many of the participants have started to implement the
clarified ISAs in your 2010 audits?
• If you have not, what does your implementation timeframe
look like?
• Have you referred to any of the IAASB and IFAC
implementation material?
• If so, what did you find useful and what did you find was not
useful?
Questions
8
Clarified ISAs and SMEs
• A complex, multi-
faceted topic
• ISAs not the only
influence on AQ
• IAASB thought
piece issued Jan
2011 to stimulate
thoughts and
discussions on AQ
• IAASB
consideration of
project on AQ
Audit Quality
QC and Audit Effectiveness and Efficiency
9
• ISQC 1 and ISA 220 establish framework for QC at the
firm and engagement levels
• Together, they address many of inputs to AQ
– People: education, ethics, and mindsets
– Audit evidence and auditor judgment
– Client acceptance and continuance
– Monitoring
• IFAC SMP Committee’s Guide to Quality Control
– 2nd Edition issued 2010
– To facilitate effective implementation of ISQC 1
Quality Control
QC and Audit Effectiveness and Efficiency
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• Do you see implementation of clarified ISAs/ISQC 1 in
your firms affecting audit effectiveness or efficiency?
– If so, what improvements in audit effectiveness or efficiency
have you noted?
– In what areas?
• What challenges have you encountered in implementing
the clarified ISAs and ISQC 1?
– Are there areas in the standards that have caused particular
implementation difficulties?
• What specific actions have you taken to try to address
these challenges?
Questions
QC and Audit Effectiveness and Efficiency
11
• Demand for a range of services capable of meeting the
unique needs of SMEs and users of their financial
information
– Changes in mandatory financial reporting and auditing requirements
affecting SMEs (incl. rising audit- exemption thresholds)
– Need for alternative services focused on user needs
• IAASB project commenced in 2009, to develop appropriate
responses in both assurance and related services
• During 2009-2011, development of revised standards for
reviews (assurance) and compilations (related services)
• Next stage may be to focus on standards for agreed-upon
procedures
Responding to Diverse Needs of SMEs
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IAASB Projects for SMPs
• Exposure drafts (EDs) issued in 2010:
– Proposed International Standard on Related Services 4410 (Revised),
Compilation Engagements (comments by Mar 31)
– Proposed International Standard on Review Engagements 2400
(Revised), Engagements to Review Historical Financial Statements(comments by May 20)
• These EDs will hopefully lead to revised IAASB standards
that enable practitioners to assist SMEs through providing
assurance services (either audit or review), or when
assurance is not needed, services relevant to the preparation
of financial information for external use
Reviews and Compilations
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IAASB Projects for SMPs
• Practitioner applies accounting and financial reporting
expertise to assist management of an entity in preparing and
presenting financial information in accordance with an
applicable financial reporting framework
• Main features:
– Applicable financial reporting framework
– Depth of knowledge required of practitioner
– Communicating about the engagement performed & reporting
– No assurance given (users’ confidence in compiled financial
information is enhanced through practitioner’s involvement)
Compilation Engagements
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IAASB Projects for SMPs
• Are compilations frequently performed in your jurisdiction?
If not, why not?
• If so, do you consider:
1. The proposed ISRS contains helpful clarifications about
compiling financial statements? If not, what further
guidance or clarification would be helpful?
2. The proposed changes are helpful for practitioners
performing compilations? If not, what requirements
might need to be rethought and why?
Questions
15
IAASB Projects for SMPs
• Practitioner’s objective is to:
“(a) conclude, through performing primarily inquiry and analytical procedures,
and evaluating the sufficiency and appropriateness of evidence obtained,
whether anything has come to the practitioner’s attention that causes the
practitioner to believe the financial statements are not prepared, in all
material respects, in accordance with an applicable financial reporting
framework and (b) report on the financial statements as a whole, and
communicate in accordance with this [i.e. proposed] ISRE.”
• Main features:
– Limited assurance
– Depth of knowledge required of practitioner
– Communicating about the engagement performed & reporting
– Distinct assurance engagement (different from an audit)
Review Engagements
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IAASB Projects for SMPs
• Are reviews of financial statements frequently performed in
your jurisdiction? If not, is there a specific reason?
• If yes, what factors typically drive performance of reviews?
Do users understand reviews?
• Do you consider:
1. The proposed ISRE contains helpful clarifications about
reviewing financial statements? If not, what further
guidance or clarifications would be helpful?
2. The proposed changes are helpful for practitioners
performing reviews? If not, what requirements might
need to be rethought and why?
Questions
17
IAASB Projects for SMPs
• IAASB proposing to retain its current areas of strategic
focus
– Development (and revision) of standards, including ISAs
and other assurance standards
– Monitoring and facilitating adoption of those standards
– Responding to concerns about the implementation of
standards by activities designed to improve the
consistency with which they are applied in practice
• Key question will be how should the Board
prioritize its agenda in achieving these objectives?
IAASB Strategy and Work Program for 2012 – 2014
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Next Steps for SMEs and SMPs
• In relation to the ISAs:
– Communicating on the benefits of adopting the clarified
ISAs
– Sharing success stories of SMPs
– Consideration of further actions to assist in the
implementation of ISQC 1
– Working with others to respond to implementation
challenges
• In relation to other assurance and related services:
– Revision of the standard on agreed-upon procedures
– Future – hybrid engagements? Other alternatives to audit?
Possible Actions Identified in the Consultation
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Next Steps for SMEs and SMPs
• Do SMPs need additional resources to help them in
interpreting and applying the ISAs on an appropriate and
proportional basis?
– If so, in what form do you think this support could best be
provided?
– What type of additional guidance are SMPs looking for?
– Is the demand generic or country-specific?
• For example:
– Are SMPs appropriately applying the risk assessment
standards?
– Staff publication on recent major revisions to ISAs
planned for 2011
Questions
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Next Steps for SMEs and SMPs
• What single thing could the IAASB, as a
standard-setter, do to assist SMPs?
• To answer this:
– Your feedback during this forum is much
appreciated
– IAASB is looking for SMP input on its
strategy consultation
– Findings from the SMP survey on the ISA
Implementation Monitoring project will be
relevant
Questions
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Next Steps for SMEs and SMPs
• SMP Committee monitors IAASB projects and
provides feedback
• SMPs encouraged to respond to strategy and other
consultations
– Short and focused responses are welcome
• Track projects at www.iaasb.org/projects.php
• Subscribe to IAASB and IFAC SMP eNews [insert
website]
Further Involvement by SMPs in the IAASB’s
Work Is Needed
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Next Steps for SMEs and SMPs
• IAASB Clarity Center – ISA Modules, November 2010 ISA
Implementation Monitoring report
• Publications and Resources site – web.ifac.org/publications
IAASB: Handbook of IAASB pronouncements, Staff
publications; IFAC SMP Committee: ISA and QC Guides
• IAASB Exposure Drafts and Consultation Papers –
www.iaasb.org/exposuredrafts.php
• Meeting Diverse Needs – Publication explaining audits and
reviews, compilations –
web.ifac.org/download/IAASB_SME_Services_Brochure.p
df
For More Information, Visit
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Reference Materials