Small- and medium-sized practices (SMPs) may require practical support when implementing the International Standards on Auditing (ISAs) in audits of small- and medium-sized entities (SMEs). IFAC (International Federations of Accountants) has updated the Guide to Using ISAs in the Audits of SMEs, Fourth Edition (the Guide) to help firms efficiently and proportionally apply ISAs on SME audits.
This fourth edition is updated to reflect recent changes to the ISAs including International Auditing and Assurance Standards Board (IAASB) projects on:
Auditor Reporting;
Disclosures;
The Auditor’s Responsibilities Relating to Other Information; and
Using the Work of Internal Auditors.
The Guide is designed for use by all practitioners. Volume 1 covers the fundamental concepts of a risk-based audit in conformance with the ISAs. Volume 2 contains practical guidance on performing SME audits, including two illustrative case studies—one of an SME audit and one of a micro-entity audit.
Since it was first published in 2007, the Guide has been downloaded over 100,000 times and there are 22 translations completed or in progress. To help facilitate additional translations, IFAC Members can request a Word version of the Guide with tracked changes.
Many firms use the Guide for training purposes and as the basis for firm manuals. In order to help them and our member organizations maximize the Guide’s use, IFAC has also updated the Companion Manual which provides practical ‘best use’ suggestions for the Guide.
IFAC has a long history of developing implementation support for international standards. In addition to the Guide, the extensive suite of material includes:
To ensure that International Standards on Auditing continue to form the basis for high-quality, valuable and relevant global audits, the IAASB Exposure Draft, ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement, proposes more robust requirements and improved guidance to:
To ensure that International Standards on Auditing continue to form the basis for high-quality, valuable and relevant global audits, the IAASB proposes more robust requirements and improved guidance to:
Drive consistent and effective identification and assessment of risks of material misstatement;
Modernize ISA 315 to meet evolving business needs, including information technology, and how auditors use automated tools and techniques, including data analytics, to perform audit procedures;
Improve the standard’s applicability to entities across a wide spectrum of circumstances and complexities; and
Focus auditors on exercising professional skepticism throughout the risk identification and assessment process.
Through its ISA Implementation Monitoring Project and targeted continuing stakeholder outreach, the IAASB has received significant stakeholder input as the proposed revisions have been developed. The Exposure Draft is a key element of the IAASB’s work to address the fundamental elements of an audit and thereby enhance audit quality.
Proposed Changes to ISA 315 (Revised) to Advance Audit Quality
The IPSASB held its second meeting of the year from June 19-22, 2018 in Toronto, Canada.
Governance
The Chair of the IPSASB Consultative Advisory Group (CAG) provided an overview and update of the June 18, 2018 CAG meeting held in Toronto. The CAG meeting agenda, papers and presentations are available online here.
Update to IPSAS 28-30, Financial Instruments
The IPSASB reviewed the recommendations developed by the Financial Instruments Task Force to address the responses to ED 62, Financial Instruments. The IPSASB agreed that the recommendations addressed the concerns raised by stakeholders and approved IPSAS 41, Financial Instruments. IPSAS 41 will have an effective date of January 1, 2022.
Social Benefits and Non-Exchange Expenses: Scope and Definitions
The IPSASB discussed responses to ED 63, Social Benefits, beginning with its scope and definitions. The IPSASB noted that while respondents generally supported the scope of ED 63, a number considered that some definitions of key terms need to be clearer. The IPSASB agreed to retain the scope proposed in ED 63, but to clarify some definitions. In particular, the definition of social benefits will refer to cash transfers. In the context of non-exchange expenses a definition of collective services will also be developed.
Social Benefits: Insurance Approach, Recognition Measurement and Financial Sustainability Reporting
The IPSASB continued to review other issues raised by respondents to ED 63, Social Benefits. The IPSASB agreed that the insurance approach should remain optional. The IPSASB will not develop mandatory requirements for financial sustainability reporting.
On recognition and measurement, there was roughly equal support for both the proposals in ED 63 and the Alternative View. The IPSASB agreed to proceed on the basis of the proposals in ED 63 and will further discuss the possibility of post implementation reviews more broadly.
The IPSAB decided that, in dealing with commercial-style transactions, there are no major public sector issues that warrant departure from IFRS 15, Revenue from Contracts with Customers. As a result, the only changes that will be made are to terminology. IFRS 15 introduces some new definitions, and the IPSASB discussed how to incorporate these into a new IPSAS in order to ensure that the definitions reflect the public sector context. The IPSAS that is being developed will replace IPSAS 9, Revenue from Exchange Transactions and IPSAS 11, Construction Contracts.
Revenue and Non-Exchange Expenses: Public Sector Performance Obligation Approach
The IPSASB decided to proceed with the Public Sector Performance Obligation Approach for transactions with performance obligations, which do not have the characteristics to be accounted for under an IPSAS IFRS 15- aligned standard. The Board agreed that Steps 1 and 2 of the performance obligation approach model will require careful consideration, as these steps drive the rest of the five-step model.
Application of the PSPOA to non-exchange expenses depends on whether the transferor entity has an asset for the services, which the recipient will provide. The IPSASB will discuss this issue further at its September meeting.
The IPSASB agreed to include guidance on accounting for social contributions in an amended IPSAS 23, Revenue from Non-Exchange Transactions (Taxes and Transfers). Social contributions and similar compulsory levies will be accounted for using the same principles as taxation revenue.
Following discussion, the IPSAB decided not to amend the existing discretionary recognition requirements in IPSAS 23 for services in-kind. The IPSASB decided to add an encouragement for entities to disclose qualitative information on volunteer services received.
The IPSASB confirmed that no liability to the public for collective services arises prior to the delivery of those services. The IPSASB agreed to provide guidance on this issue through a narrow scope amendment adding application guidance to IPSAS 19. The IPSASB also agreed to extend this guidance to universally accessible services.
The IPSASB provided instructions on development of a flow chart on the subsequent measurement of assets. A table of equivalence comparing and contrasting terms from IPSAS, International Valuation Standards, and the Government Finance Statistics Manual will be further developed. The IPSASB directed the Financial Instruments Task Force to provide a recommendation on public sector modifications to IFRS 13, Fair Value Measurement, so that requirements and guidance from IFRS 13 can be included in a future ED, Measurement. The IPSASB held a preliminary discussion on the subsequent measurement of liabilities.
The IPSASB decided to replace the IPSAS-IFRS Tracking Table with the IPSAS-IFRS Alignment Dashboard as a standing agenda item. The IPSASB decided to adopt provisionally the term ‘alignment’ instead of ‘convergence’ in the context of standards drawn from IFRS but will make a final decision at its September meeting, when reviewing the comments on the Strategy and Work Plan consultation.
The next meeting of the IPSASB will be in Toronto, Canada from September 18-21, 2018. For more information, or to register as an observer, visit the IPSASB website.
The IPSASB discussed responses to ED 63, Social Benefits, beginning with its scope and definitions. The IPSASB noted that while respondents generally supported the scope of ED 63, a number considered that some definitions of key terms need to be clearer. The IPSASB agreed to retain the scope proposed in ED 63, but to clarify some definitions. In particular, the definition of social benefits will refer to cash transfers. In the context of non-exchange expenses a definition of collective services will also be developed.
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