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Update of ISAs
from 2003 to 2008
Andreas Mikromastoras
Grant Thornton Greece
Introduction and objectivesISAs from 2003-2008
Presentation Objective
The presentation is referred in the development of ISAs
from 2003 until 2008. These years were so important for
the development of International Standards on
Auditing.
The reasons are turned mainly round the development of
world economy as much as in considerably fact which
marked the audit profession in the same period.
The presentation will begin with few introductive
information about IAASB and it will be continued with the
presentation by year of important changes in ISAs.
Presentation Objective
Objective of presentation is the comprehension of
developments in the Standards as well as that the objectives
of Standards have been changed and the same time
auditor’s profession have been changed also.
About IAASB
International Auditing and Assurance Standards Board
(IAASB) is a standard –setting body designated by and
operating under the auspices of the International Federation
of Accountants (IFAC).
About IAASB
What is the objective of IAASB?
Serving the public interest
•
by setting, independently and under its own authority
high-quality auditing, assurance, quality control and
related services standards.
• by facilitating the convergence of national an international
standards.
About IAASB
There by, enhancing the quality and uniformity
of practice throughout the world and
strengthening public confidence in the global
auditing and assurance profession.
IASB objective: "to develop a single set of high quality, understandable
and enforceable global accounting standards that require high quality,
transparent and comparable information in financial statements …."
About Clarity Project
In 2003, the IAASB undertook a review of its drafting
conventions to identify ways to improve the clarity of its
Standards and the consistency of their application (the
Clarity Project).
The Clarity Project is one of the IAASB’s most significant
projects aimed at improving the clarity and understandability
of International Standards on Auditing.
This was necessary due to suggestions of
Regulators.
About Clarity Project
The improvements which are into the Clarity Project broadly
comprise as follows:
• Setting an objective for the professional accountant in respect
of each Standard.
• Clarifying the obligations imposed on professional accountants
by the requirements of the Standards, using revised language.
• Eliminating any ambiguity about whether the use of
the present tense in Standards imposed any
obligation on the professional accountant; and
About Clarity Project
• Improving the overall readability and understandability of the
Standards through structural and drafting improvements,
including clarifying the application material in the Standards.
How Clarity Project improves ISAs?
 Makes the Standards clearer
Leading to more consistent application
Promote their adoption and
Facilitate international convergence
UpDated Of ISAs -2003
Updated of ISAs - 2003
How was the world economy at 2003?
• Weak global economy (Asian crisis)
• Financial reporting scandals (e.g. Enron, Parmalat)
• Concern about the role of preparers, management, those
charged with governance and finally of course the role of
Auditors.
All these factors they created a frame of doubt.
Updated of ISAs - 2003
Furthermore, there is the establishment of the US Public
Company Accounting Oversight Board (PCAOB) and
worldwide critical discussion regarding the consequences of
the US Sarbanes-Oxley Act.
RESPONSES OF IAASB
• Focus on the development of high- quality standards on
auditing.
• Focus on standards addressing audit risk, quality control
responsibilities at both the firm-wide and engagement
levels.
Updated of ISAs - 2003
• Develops an assurance framework
• Issues a revised standard for assurance engagements
other than audits or reviews of historical financial
information.
In 2003, more than 70 countries have indicated that they
either have adopted ISAs or noted that there are no
significant differences between their national Standards
and ISAs.
Updated of ISAs - 2003
In 2003, the IAASB:
 successfully finalized its standards on audit risk.
 successfully finalized its assurance framework and its
first standard for assurance engagements other than
audits.
Updated of ISAs - 2003
Approved and issued ISAs on 2003:
International Standards on Auditing
•
ISA 315- Understanding the entity and its environment and
assessing the risk of Material Misstatement (October 2003).
•
ISA 330- The auditor’s procedures in response to Assessed
Risks (October 2003).
•
ISA 500- Audit Evidence (Revised October 2003).
Updated of ISAs - 2003
Approved and issued ISAs on 2003:
International Standards on Auditing
•
ISA 200- Objective and General Principles governing an
Audit of financial statements. (amendment October
2003).
Updated of ISAs - 2003
Assurance Standards issued on 2003:
• International Framework for Assurance Engagements
(Revised –December 2003).
• International Standard on Assurance Engagements
(ISAE 3000)- Assurance Engagements other than audits
(December 2003).
UpDated Of ISAs -2004
Updated of ISAs - 2004
In 2004, the IAASB successfully
finalized and issued five new or
revised standards.
Updated of ISAs - 2004
Approved and issued ISAs on 2004
- International Standards on Auditing
•
ISA 220- Quality Control for Audits of Historical
Financial Information (Revised-February 2004)
•
ISA 240- Auditor’s Responsibility to Consider Fraud
in an Audit of Financial Statements (Revised –
February 2004)
Updated of ISAs - 2004
Approved and issued ISAs on 2004
- International Standards on Auditing
•
ISA 300- Planning an Audit of Financial Statements
(Revised – June 2004)
•
ISA 700- The Independent Auditor’s Report on a
Complete Set of General Purpose Financial
Statements
Updated of ISAs - 2004
Approved and issued ISAs on 2004
- International Standards on Quality Control
• ISQC 1- Quality Control for Firms that Perform Audits
and Reviews of Historical Financial Information and
Other Assurance and Related Services Engagements
(February 2004).
Quality Control Standards - 2004
Significant objective of IAASB is the quality control.
Quality control is fundamental to high quality audit work.
IAASB approved two standards on quality control.
• ISQC 1- Quality Control for Firms that Perform Audits and
Reviews of Historical Financial Information, and Other
Assurance and Related Services Engagements.
Quality Control Standards - 2004
ISQC1 establishes a firm’s responsibilities to set up and
maintain a system of quality control for all audits, other
assurance and related services agreements.
• The revised International Standard on Auditing (ISA 220)
Quality Control for Audits of Historical Information, which
establishes standards for the specific responsibilities of firm
personnel for an individual audit engagement and is
premised upon the requirements of the firm-wide quality
control standards set out in ISQC 1.
Quality Control Standards- 2004
Why focus on Quality Control Standards?
The quality control standards are designed:
 to help restore public confidence in auditing following the
corporate financial scandals of prior years and
 to ensure the highest level of quality in the delivery of other
assurance services by professional accountants.
Revised ISA 240 Fraud - 2004
The revised ISA 240:
 requires the auditor to direct more focused efforts on
areas where there is a risk of material misstatement of
financial statement due to fraud, including management
fraud.
 requires the auditor to design and perform audit
procedures responsive to identified risks of material
misstatement due to fraud, including procedures to address
the risk of management override of controls.
Revised ISA 240 Fraud- 2004
While management fraud will always be difficult to detect, the
revised Standard reinforces the auditor’s responsibilities to
identify and address the risk of material misstatement due to
fraud.
These new requirements will result in an increased work
effort for auditors.
Revised ISA 300- Audit Planning -2004
The revised ISA 300 requires auditors to be more rigorous in
planning their audits so that their engagements will be
performed in an effective matter.
The revised ISA 300 requires the
auditor to establish an overall
strategy that sets the scope, timing
and direction of the audit.
Revised ISA 300- Audit Planning -2004
KEY ROLE OF OVERALL STRATEGY
•Allocation of the auditor’s resources to the higher risk areas.
•Auditor plan risk assessment procedures.
•Further audit procedures focused on the areas of greatest
audit risk.
Revised ISA 700- Auditor’s Report-2004
The revised ISA 700 establish a new form of audit report.
The Standard sets out a framework to separate audit
reporting requirements in connection with an ISA audit from
additional reporting responsibilities required in some
jurisdictions.
The new form of audit report is:
• comparable across jurisdictions
• flexible to accommodate specific local
reporting requirements.
UpDated Of ISAs -2005
Updated of ISAs - 2005
Primary focus of IAASB remains on restoring confidence
in the audit of financial statements.
In 2005, IAASB makes significant steps for the improvement
of International Standards on Auditing.
Updated of ISAs - 2005
Improving Readability and Understandability
New terms or expressions were defined in a Definitions
section of a Standard. All Standards contained the following
four principal sections:
•Introduction: the scope and effective date of the Standard;
•Objective: the objective to be achieved by the professional
accountants;
Updated of ISAs - 2005
Improving Readability and Understandability
•Requirements: the requirements to be complied with,
together with explanatory material necessary to make the
section understandable by an experienced professional
accountant;
•Application material- material, supplemented in some
cases by appendices, that provides further explanation and
guidance supporting proper application of the Standard.
Updated of ISAs - 2005
The IAASB finalized two (2) Standards in 2005.
International Standards on Auditing
• ISA 230, Audit Documentation (Revised- September
2005).
International Standards on Review Engagements
• ISRE 2410, Review of Interim Financial Information
performed by the Independent Auditor of the Entity (June
2005).
Also, IAASB approved amendments to ISQC 1.
ISA 230- Audit Documentation- 2005
Audit Documentation is a critical element of an audit. It
provides a record of audit work and audit evidence that
supports the auditor’s report.
The revised Standard introduces important changes
designed to improve the quality of audit documentation.
ISA 230- Audit Documentation- 2005
The Standard requires the auditor to prepare audit
documentation sufficient to allow an experienced auditor,
having no previous connection with the audit, to understand:
•The audit work
•The audit evidence
•Significant Matters arising during the audit and
•The Auditor’s conclusions.
ISA 230- Audit Documentation- 2005
The revised Standard establishes:
 New requirements for the auditor to prepare audit
documentation promptly.
 New requirements for the auditor to close the audit files
within a reasonable time.
 New documentation requirements when an auditor finds it
necessary to depart from the requirement of an ISA to
achieve the objective of the audit.
ISRE 2410- Review of Interim Information 2005
The new Standard assists auditors, in carrying out their
professional responsibilities when reviewing the interim
financial information of an audit client.
The Standard outlines the general principles of a review of
interim financial information, provides guidance on the
inquiries and the analytical and other review procedures the
auditor is to perform, and prescribes the content of the
review report.
ISRE 2410- Review of Interim Information 2005
The Standard also, provides guidance on the engagement
and management representation letters the auditor may
obtain when performing the review and includes illustrative
review reports.
UpDated Of ISAs -2006
Updated of ISAs – 2006- Road to Clarity
In 2006, the IAASB made substantial progress on its work
program .
•Four final redrafted standards and an amended Preface
approved under the clarity project.
•Seven redrafted standards issued as exposure drafts
under the clarity drafting conventions.
•Three revised standards issued for
exposure or re-exposure.
Updated of ISAs -2006
The four final Standards are analyzed as follows:
• ISA 240- The Auditor’s Responsibilities Relating to Fraud in
an Audit of Financial Statements. (Redrafted–October 2006).
•ISA 300- Planning an Audit of Financial Statements
(Redrafted – September 2006).
•ISA 315- Identifying and Assessing the Risks of Material
Misstatement Through Understanding the Entity and Its
Environment (Revised –September 2006).
Updated of ISAs -2006
International Standards on Auditing
• ISA 330- The Auditor’s Responses to Assessed Risks.
(Redrafted–September 2006).
Furthermore, IAASB made amendments under the “Clarity
Project” to the “Preface to the International Standards on
Quality Control, Auditing, Review, Other Assurance and
Related Services” that establish the new drafting conventions
it will use in developing future ISAs, and the authority and
obligation attaching to those conventions.
Updated of ISAs -2006
International Standards on Auditing
and finally IAASB publishes a
Policy Statement, Modifications to International Standards of
the International Auditing and Assurance Standards Board
(IAASB) – A Guide for National Standard Setters that Adopt
IAASB’s International Standards but find it necessary to make
limited modifications.
Updated of ISAs -2006
International Standards on Auditing
All the aforementioned ISAs have been redrafted under the
“Clarity Project” which makes the ISAs clearer and, by
clarifying that previous guidance contained some requirements,
stronger.
This will lead to more consistent application of ISAs, and
assist in their adoption in jurisdictions around the world.
UpDated Of ISAs -2007
Updated of ISAs -2007
During 2007, IAASB made significant
progress on its work program.
Priority of the IAASB has been the
development of high quality ISAs
that are accepted globally and that
facilitate convergence.
ISAs are becoming more widely accepted throughout the
world. Many national standard setters have recognized the
benefits of consistent auditing standards and have adopted
ISAs.
Updated of ISAs -2007
Up to date more than 100 countries have
Indicated that they either have adopted
ISAs or noted that there no significant
changes between their national standards
of auditing and ISAs.
Updated of ISAs -2007
In 2007, the IAASB approved seven final ISAs and 21
exposure drafts of ISAs drafted in accordance with the new
conventions.
The approved final ISAs are analyzed
as follows:
Updated of ISAs -2007
International Standards on Auditing
• ISA 260- Communication with those charged with
governance. (Revised –September 2007).
• ISA 540- Auditing Accounting Estimates, including Fair
Value Accounting Estimates and Related Disclosures
(Revised – December 2007).
• ISA 580- Written Representations (Revised –December
2007).
Updated of ISAs -2007
International Standards on Auditing
• ISA 600- Special Considerations Audits of Group Financial
Statements
(Including
the
Work
of
Component
Auditors).(Revised –July 2007).
• ISA 560- Subsequent Events (Redrafted – December
2007).
• ISA 720- The Auditor’s Responsibility in Relation to Other
Information in Documents Containing Audited Financial
Statements (Redrafted –September 2007).
ISA 260- Communication with those charged
with governance- 2007
The revised ISA sets out a framework for communicating with
those charged with governance.
The revised ISA:
 Identifies specific matters to be communicated by the auditor,
including a requirement to communicate in writing about auditor
independence.
 Acknowledges that law or regulation, or an agreement with
the entity, may require communication of other matters.
ISA 260- Communication with those charged
with governance- 2007
 Contains new requirements and guidance for the
communication process, including a specific requirement for the
auditor to evaluate the adequacy of the two-way
communication between the auditor and those charged with
governance.
ISA 540- Auditing Accounting Estimates,
Including Fair Value Accounting Estimates and
Related Disclosures -2007
This Standard which reflects the combination of extant ISA 540
as revised by the IAASB in 2006, and ISA 545 Auditing Fair
Value Measurements and Disclosures was approved by the
IAASB in December.
In addition to applying the Clarity conventions to the combined
standard, the IAASB also tailored the application and other
explanatory material to include more guidance relevant to fair
value accounting estimates.
ISA 540- Auditing Accounting Estimates,
Including Fair Value Accounting Estimates and
Related Disclosures -2007
The combination of the standards not only allowed it to update
the standard with regard to fair value measurements, but also
to align the similar principles underlying the audits of fair value
accounting estimates with those of routine estimates.
ISA 540- Auditing Accounting Estimates,
Including Fair Value Accounting Estimates and
Related Disclosures -2007
Why ISA 540 was revised?
The disruptions in the global credit markets have highlighted
the difficulty of estimating fair values when markets have
become less liquid or where a move from market valuations to
valuations based on unobservable inputs is necessary.
The revision of ISA 540 allowed to bring relevant auditing
standards up to date.
ISA 580- Written Representations-2007
The IAASB in revised Standard has introduced changes aimed
at promoting consistency in practice.
The description of the fundamental premise, relating to
management’s responsibilities, on which an audit is conducted,
has been revised.
ISA 580- Written Representations-2007
The IAASB recognized that changes were necessary to the
matters set forth in proposed ISA 210 (Redrafted), Agreeing the
Terms of Audit Engagements, and proposed ISA 700
(Redrafted), The Independent Auditor’s Report on General
Purpose Financial Statements.
ISA 580- Written Representations-2007
Other matters addressed in ISA 580 include :
 whether written representations can suffice as audit
evidence,
 the date of the written representations, and
 cases of unreliable written representations or the refusal of
management to provide them.
ISA 600- Audit of Group Financial Statements2007
One of the most significant new standards is ISA 600. The
new ISA takes account of:
 regulatory and standard-setting developments around the
world.
 the interests of small entities, and
 the expectations of various stakeholders, including those
represented on the IAASB.
The new standard will enhance current practice and promote
consistency on group audits worldwide.
ISA 600- Audit of Group Financial Statements2007
The new Standard refers to the extent to which the group
auditor needs to be involved in the audits of components that
are audited by other auditors.
Whether these auditors are independent of the group auditor
(unrelated auditors) or belong to the group auditor’s national or
international firm or network of firms (related auditors).
ISA 600- Audit of Group Financial Statements2007
The revised Standard is created on the basis that a group
auditor takes sole responsibility for the audit opinion on
the group financial statements
This requires the group auditor to obtain sufficient appropriate
audit evidence on which to base that opinion.
UpDated of ISAs -2008
Updated of ISAs - 2008
The International Auditing and Assurance Standards Board
(IAASB), moves closer to completion of its Clarity Project
today with the release of seven clarified International
Standards on Auditing (ISAs) and one clarified International
Standard on Quality Control (ISQC).
To date, the IAASB has released 29 final redrafted ISAs and
one final redrafted ISQC in the new clarity style.
Updated of ISAs - 2008
The approved final ISAs are analyzed as follows:
 ISA 220 – Quality Control for an Audit of Financial
Statements (Redrafted).
ISA 500 – Audit Evidence (Redrafted).
ISA 501 – Audit Evidence – Specific Consideration for
Selected items (Redrafted).
ISA 505 – External Confirmations (Revised and Redrafted).
Updated of ISAs - 2008
The approved final ISAs are analyzed as follows:
 ISA 620 – Using the work of an Expert (Revised and
Redrafted).
 ISA 710 – Comparative information – Corresponding
Figures and Comparative Financial Statements (Redrafted).
 ISQC 1- Quality Control for Firms that Perform Audits and
Reviews of Financial Statements, and Other Assurance and
Related Services Engagements (Redrafted).
ISA 620- Using the work of an expert-2008
This revised standard deals with the auditor’s use of the work
of a person or organization possessing expertise in a field other
than accounting or auditing, who is employed or engaged by
the auditor to assist him to obtain sufficient appropriate audit
evidence.
It places particular emphasis on the need for the auditor to
evaluate the expert’s objectivity, and to jointly establish a
proper understanding of that expert’s responsibilities for
the purposes of the audit.
ISA 505- External Confirmations-2008
Recent experience has indicated that external confirmations
are not always as reliable as expected. This has led to requests
for more rigorous requirements governing the auditor’s use of
external confirmations.
The auditor’s decision whether to use external confirmation
procedures is based on the identification and assessment of
risks of material misstatement in accordance with other ISAs,
as well as the relative value of different sources of audit
evidence.
ISA 505- External Confirmations-2008
ISA 505 is directed at the effective performance of external
confirmation procedures when the auditor determines that such
procedures appropriately respond to an assessed risk of
material misstatement.
Summary of significant changes
Significant Changes 2003-2008
Which are the most significant changes?
Obviously, all changes of ISAs are considered important
and influence the work of an auditor but if we want to mark
the most important of them we will have to refer in
following changes:
ISQC 1- Quality Control for Firms that Perform Audits and
Reviews of Financial Statements, and Other Assurance and
Related Services Engagements.
ISA 220- Quality Control for Audits of Historical Financial
Information.
Significant Changes 2003-2008
Which are the most significant changes?
•ISA 300- Planning an Audit of Financial Statements
•ISA 240- Auditor’s Responsibility to Consider Fraud in an Audit
of Financial Statements.
•ISA 260- Communication with those charged with governance.
• ISA 600- Special Considerations Audits of Group Financial
Statements (Including the Work of Component Auditors).
•Clarity Project
Significant Changes 2003-2008
International Standard on Quality Control (ISQC) 1- Quality
Control for Firms that Perform Audits and Reviews of Historical
Financial Information, and Other Assurance and Related
Services Engagements.
This Standard we can say that changes the “life of auditors”. It
is useful to mention the basic points of this Standard.
Significant Changes 2003-2008
The purpose of this International Standard is to establish
standards and provide guidance regarding a firm’s
responsibilities for its system of quality control for audits and
reviews of historical financial information, and for other
assurance and related services engagements.
ISQC 1- Basic Points
• The firm should establish a system of quality control designed
to provide it with reasonable assurance that the firm and its
personnel comply with professional standards and regulatory
and legal requirements, and that reports issued by the firm or
engagement partners are appropriate in the circumstances.
Significant Changes 2003-2008
• ISQC 1 applies to all firms.
The firm’s system of quality control should include policies and
procedures addressing each of the following elements:
(a) Leadership responsibilities for quality within the firm
“The firm should establish policies and procedures designed to
promote an internal culture based on the recognition that quality is
essential in performing engagements. Such policies and procedures
should require the firm’s chief executive officer (or equivalent) or, if
appropriate, the
firm’s managing board of partners (or equivalent), to assume ultimate
responsibility for the firm’s system of quality control.”
Significant Changes 2003-2008
(b) Ethical requirements
“The firm should establish policies and procedures designed to
provide it with reasonable assurance that the firm and its personnel
comply with relevant ethical requirements (Integrity, Objectivity,
Confidentiality, Professional Competence and Professional Behavior.”
(c) Human resources
“The firm should establish policies and procedures designed to
provide it with reasonable assurance that it has sufficient personnel
with the capabilities, competence, and commitment to ethical
principles necessary to perform its engagements in accordance with
professional standards and regulatory and legal requirements, and to
enable the firm or engagement partners to issue reports that are
appropriate in the circumstances. “
Significant Changes 2003-2008
(d) Acceptance and continuance of client relationships and
specific engagements
“The firm should establish policies and procedures for the acceptance
and continuance of client relationships and specific engagements,
designed to provide it with reasonable assurance that it will only
undertake or continue relationships and engagements where it:
(1) Has considered the integrity of the client and does not have
information that would lead it to conclude that the client lacks integrity;
(2) Is competent to perform the engagement and has the capabilities,
time and resources to do so; and
(3) Can comply with ethical requirements.”
Significant Changes 2003-2008
(e) Engagement performance
“The firm should establish policies and procedures designed to
provide it with reasonable assurance that engagements are performed
in accordance with professional standards and regulatory and legal
requirements, and that the firm or the engagement partner issue
reports that are appropriate in the circumstances. “
(f) Monitoring
“The firm should establish policies and procedures designed to
provide it with reasonable assurance that the policies and procedures
relating to the system of quality control are relevant, adequate,
operating effectively and complied with in practice. Such policies and
procedures should include an ongoing consideration and evaluation of
the firm’s system of quality control, including a periodic inspection of a
selection of completed engagements.”
Significant Changes 2003-2008
ISA 300- Planning an Audit of Financial Statements
The revised ISA 300 requires the auditor to establish an
overall strategy that sets the scope, timing and direction of
the audit.
The planning stage of an audit has year by year more important
role in the audit work. ISA 300 guides auditors to this direction.
Significant Changes 2003-2008
ISA 240- Auditor’s Responsibility to Consider Fraud in an Audit
of Financial Statements.
The revised ISA 240 requires the auditor to direct more
focused efforts on areas where there is a risk of material
misstatement of financial statement due to fraud, including
management fraud.
The Standard also, requires the auditor to design and perform
audit procedures responsive to identified risks
Significant Changes 2003-2008
ISA 240- Auditor’s Responsibility to Consider Fraud in an Audit
of Financial Statements.
of material misstatement due to fraud, including procedures to
address the risk of management override of controls.
While management fraud will always be difficult to detect, the
revised Standard reinforces the auditor’s responsibilities to
identify and address the risk of material misstatement due to
fraud.
Significant Changes 2003-2008
ISA 260- Communication with those charged with governance.
The revised ISA :
• Sets out a framework for communicating with those charged
with governance.
• Identifies specific matters to be communicated by the auditor.
• Acknowledges that law or regulation, or an agreement with
the entity, may require communication of other matters.
Significant Changes 2003-2008
ISA 260- Communication with those charged with governance.
The revised ISA :
• Includes a specific requirement for the auditor to evaluate the
adequacy of the two-way communication between the auditor
and those charged with governance.
Significant Changes 2003-2008
ISA 600- Special Considerations Audits of Group Financial
Statements (Including the Work of Component Auditors).
The revised ISA:
• Refers to the extent to which the group auditor needs to be
involved in the audits of components that are audited by other
auditors whether these auditors are independent of the group
auditor (unrelated auditors) or belong to the group auditor’s
national or international firm (related auditors).
Significant Changes 2003-2008
ISA 600- Special Considerations Audits of Group Financial
Statements (Including the Work of Component Auditors).
The revised ISA:
• Is created on the basis that a group auditor takes sole
responsibility for the audit opinion on the group financial
statements. This requires the group auditor to obtain sufficient
appropriate audit evidence on which to base that opinion.
Significant Changes 2003-2008
Clarity Project
The Clarity Project is one of the IAASB’s most significant
projects aimed at improving the clarity and understandability
of International Standards on Auditing.
Questions
Thank you
for your attention