The SCWG met with representatives from IAASB and IESBA, led by IAASB Deputy Chair Megan Zietsman and IESBA Chairman Stavros Thomadakis on February 15, 2018 to obtain details of their current and future work plans and to discuss IFIAR’s key concerns.
The two days SCWG meeting was hosted by the PCAOB in Washington DC. SCWG member representatives attended from Canada, France (SCWG Chair), Germany, Japan, South Africa, the Netherlands, UK, and the USA, with the IFIAR Executive Director also in attendance. William D. Duhnke, Chair of the PCAOB Board, welcomed the SCWG.
The meeting covered the main current international standard setting projects, and the outcomes of the IFIAR 2017 Survey relevant from a standard setting perspective. WG Members prepared briefings on each of the projects on their respective agendas, focusing on whether standards are sufficiently clear and whether they sufficiently contribute to audit quality and the need for consistent execution of audits over the globe. The key messages from the briefings were discussed with IAASB and IESBA Board members, whereby it was made clear that the views expressed were the personal, staff level views of those attending, and that these were not formally approved views of individual members of IFIAR or of IFIAR as a whole.
Key areas of discussion with IAASB included:
• Auditing Accounting Estimates (ISA 540)
o The SCWG followed up on the IFIAR response to the ISA540 exposure draft. In particular, the IAASB was encouraged to provide further clarity on the work effort required, including when the auditor uses the work of a management expert, and to embed further drivers for the application of professional skepticism.
• Identifying and Assessing the Risks of Material Misstatement (ISA 315)
o The need for links between the revision of ISA 315 (expected to be proposed in June 2018) and the ISA 540 revision (which is expected to be adopted in June 2018), was stressed. The need for further clarity about the risk assessment process and the expected need for an understanding of controls were discussed; as well as the need for alignment with ISA 330 on responding to assessed risk.
• Quality Control (ISQC 1 – 2, ISA 220)
o IFIAR previously expressed support for the IAASB project to strengthen firm quality control processes and procedures relating to quality control and internal monitoring (see IFIAR June 24, 2016 letter). SCWG questioned about areas to be clarified.
• Group Audits (ISA 600)
o This continues to be an area of concern and IFIAR consider this standard as a priority area for review.
• Other topics:
o The IAASB proposal to start a project on audit evidence (ISA 500), including “data analytics” implications.
o Concerns were raised over the lack of consistent application of the current standard on materiality (ISA 320).
o Reliance on the work of management’s expert especially in the case of accounting estimates.
• Concerns were reiterated over the time needed for the IAASB to complete the current projects.
Key areas of discussion with IESBA included:
• Questions about the coming release of the restructured IESBA Code of Ethics.
• State of play regarding the adoption of the new NOCLAR (Non-Compliance with Laws and Regulations) requirements, applicable from June 2017.
• Discussion on the requirements relating to non-audit services and the link between fees and quality of the audit.
• IESBA’s plans to assess the potential non-audit services.
• impact of technological evolutions on auditors and professional accountants. IESBA were encouraged to liaise with IAASB on this topic.
After its meeting in Washington, the SCWG will continue to engage with IAASB and IESBA to understand how the areas of concerns shared by IFIAR members will be taken into consideration by both boards. Further conference calls have been arranged in March and May with members of the ISA 540 and ISQC 1 IAASB Task Forces.