Update of ISAs from 2003 to 2008 Andreas

Update of ISAs from 2003 to 2008 Andreas Mikromastoras Grant Thornton

Introduction and objectives. ISAs 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 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? Ø Makes the Standards clearer ØLeading to more consistent application ØPromote their adoption and ØFacilitate international convergence

Up. Dated 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: Ø successfully finalized its standards on audit risk. Ø 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).

Up. Dated 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 ISQC 1 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: Ø to help restore public confidence in auditing following the corporate financial scandals of prior years and Ø 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: Ø 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. Ø 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.

Up. Dated 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: Ø New requirements for the auditor to prepare audit documentation promptly. Ø New requirements for the auditor to close the audit files within a reasonable time. Ø 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.

Up. Dated 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.

Up. Dated 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: Ø Identifies specific matters to be communicated by the auditor, including a requirement to communicate in writing about auditor independence. Ø 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 Ø 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 : Ø whether written representations can suffice as audit evidence, Ø the date of the written representations, and Ø cases of unreliable written representations or the refusal of management to provide them.

ISA 600 - Audit of Group Financial Statements -2007 One of the most significant new standards is ISA 600. The new ISA takes account of: Ø regulatory and standard-setting developments around the world. Ø the interests of small entities, and Ø 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 Statements -2007 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 Statements -2007 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.

Up. Dated 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

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