Frequently Asked Questions
ISA 600, Special Considerations--Audits of Group Financial Statements (Including the Work of Component Auditors), paragraph 19(a), states: "If the group engagement team plans to request a component auditor to perform work on the financial information of a component, the group engagement team shall obtain an understanding of... whether the component auditor understands and will comply with the ethical requirements that are relevant to the group audit and, in particular, is independent."
Did the IAASB intend to extend or otherwise override the independence requirements of the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (the IESBA Code) or other ethical requirements to which the group engagement team is subject in a group audit situation, for example, by requiring that the component auditor in all cases be subject to the same specific independence rules applicable to the group engagement team?
No, the IAASB did not intend to extend or otherwise override the independence requirements of the IESBA Code or other ethical requirements to which the group engagement team is subject. The remit of the IAASB does not include establishing specific independence or other ethical requirements for auditors or component auditors. Independence requirements in a group audit situation, which can be complex, are determined by national bodies that may have adopted the IESBA Code.
The clarified ISAs state that they are effective for audits of financial statements for periods beginning on or after December 15, 2009. How should the effective date provision be applied in the first year of implementation to audits of financial statements for periods of less than one year beginning on or after December 15, 2009?
The IAASB has not established specific transitional measures for the implementation of the clarified ISAs once they come into effect. However, the IAASB's intent when setting the effective date of the clarified ISAs was to allow auditors a reasonable period for implementation preparation. The IAASB anticipated that the necessary implementation efforts would in most cases occur in both 2009 and 2010 for activities such as: changing audit methodologies, manuals and software; developing or updating of training programs; and updating of audit programs and procedures. The IAASB did not expect that auditors would be in a position to apply the full suite of clarified ISAs to audits of financial statements for periods ending before December 14, 2010 that are shorter than 12 months in the first year the clarified ISAs are effective. Setting the effective date to periods beginning on or after December 15, 2009 was intended to provide an implementation period of approximately 24 months from the finalization of the last clarified ISA and therefore allow for a reasonable stable period which stakeholders can use to further adoption or convergence, training and implementation activities.
Accordingly, based on the IAASB's considerations referred to above, for transitional purposes in the first year of implementation the effective date of the clarified ISAs may be read as not including audits of financial statements for periods (whether annual or shorter) ending before December 14, 2010. This, however, does not restrict earlier application of the clarified ISAs, including application to engagements to audit financial statements of past years, based on consideration of the circumstances.
How do the clarified standards affect the audits of small- and medium-sized entities (SMEs)?
In 2008, IFAC issued a policy position titled IFAC's Support for a Single Set of Auditing Standards: Implications for Audits of Small and Medium-sized Entities. The paper sets out IFAC's view that International Standards on Auditing (ISAs) are designed to apply to audits of financial statements of entities of all sizes, and highlights how the International Auditing and Assurance Standards Board (IAASB) considers the needs and perspectives of SMEs in developing those standards.
When appropriate, additional considerations specific to audits of smaller entities are included within the application and other explanatory material of an ISA. These additional considerations assist in the application of the requirements of the ISA in the audit of such entities. They do not, however, limit or reduce the responsibility of the auditor to apply and comply with the requirements of the ISAs.
How do the clarified standards affect the audits of public sector entities?
The International Organization of Supreme Audit Institutions (INTOSAI) Financial Audit Subcommittee (FAS) has developed INTOSAI guidelines based on the clarified ISAs, referred to as the International Standards of Supreme Audit Institutions (ISSAIs) for financial audit. An INTOSAI guideline consists of a Practice Note and the ISA it refers to, or of a newly written INTOSAI guideline and general guidance on public sector issues.
In November 2010, the South African Declaration on ISSAIs was issued as part of the Johannesburg Accords summarizing the results of the 20th INCOSAI, the triennial Congress of INTOSAI. The Declaration represents INTOSAI's endorsement of a framework comprised of a comprehensive set of ISSAIs and INTOSAI guidance on good governance (INTOSAI GOVs). Together, the ISSAIs and INTOSAI GOVs provide guidance to public sector auditors responsible for financial audit, performance audit, and compliance audit, and also address transparency and accountability, quality control, peer review, and internal audit. The Declaration also calls upon INTOSAI members to use the ISSAI framework as a common frame of reference for public sector auditing by implementing the ISSAIs in accordance with their mandate and national legislation and regulations. This important milestone for INTOSAI is evidence of the acceptance of ISAs for public sector audits, which has been a goal of the IAASB in partnering with INTOSAI. To access the ISSAIs, click here.
Where appropriate, additional considerations specific to audits of public sector entities are also included within the application and other explanatory material of the ISA. For more information about why the ISAs are right for the public sector and how the IAASB takes public sector input into account in developing the ISAs, click here.
Those interested in translating or reproducing the ISAs and ISQC 1, in addition to other IFAC publications, should visit the Translations and Permissions section of the IFAC website. This section includes IFAC's policies regarding translations and reproductions, a database of translations of IFAC publications by third parties, and a questions and answers document that contains the most frequently asked questions on reproductions and translations.