IAASB Discussion Paper: Fraud and going concern in an audit of financial statements

Publication date: 15 Sep 2020

PwC response to IAASB Consultation Paper on Extended External Reporting (EER) Assurance

Publication date: 21 Jun 2019

pdf PwC Network Response Letter-IAASB EER Consultation

For the attention of Mr. Willie Botha
Technical Director
International Auditing and Assurance Standards Board
529 Fifth Avenue, 6th Floor
New York, New York, 10017
USA

[Submitted via IAASB website]

21 June 2019

Dear Mr. Botha,

IAASB Consultation Paper: Extended External Reporting (EER) Assurance

We1 appreciate the opportunity to comment on the IAASB’s Consultation Paper (CP) for Extended External Reporting (EER) Assurance.

We support the IAASB in developing this guidance to assist practitioners in applying ISAE 3000 (Revised) to various forms of EER. The demand for such reporting by entities and for assurance thereon is growing rapidly in many jurisdictions, with the diversity in types of information reported likely to continue to expand. Establishing clear guiding principles to help practitioners navigate future engagements is therefore useful.

In evaluating the proposed guidance, we have focused on three key attributes:

  • the clarity and understandability of the content, including the overall structure, concepts and terminology, and whether the examples provide relevant, useful illustrations;
  • whether the guidance elaborates on, but does not override or appear to extend the practitioner’s responsibilities set out in ISAE 3000 (Revised); and
  • whether the guidance is reflective of actual experience.

Our more significant comments in this regard are set out below and described in more detail in our responses to the questions posed in the consultation in appendix 1 to this letter.

1 This response is being filed on behalf of the network of member firms of PricewaterhouseCoopers International Limited and
references to “PwC”, “we” and “our” refer to the PwC network of member firms.

Clarity and understandability

Overall, we find the guidance to be well structured and understandable, if perhaps long. Recognising that this is only phase 1, we are concerned that, to be useful, the guidance needs to be perceived as manageable. In moving forward with phase 2 (and in finalising phase 1), we encourage a close focus on the most salient points of guidance, in the context of EER, and avoiding excessive background, or theoretical, content that unduly adds to its length. The guidance should avoid becoming an exercise in general education about concepts in ISAE 3000 (Revised).

We believe that the introduction of certain new concepts may detract from the usefulness of some aspects of the guidance and give rise to confusion rather than clarity, as described below.

Subject matter element “qualities”

We do not support the proposed concept of “qualities” of subject matter elements. In outreach with practitioners that conduct engagements of this nature, the term was not widely understood and was considered to be confusing. Our view is that it should be removed. Instead, the simpler concept of “characteristics” of the subject matter elements that are to be measured, which is used in the International Framework for Assurance Engagements, is more intuitive and easier to understand.

Assertions

We support the guidance on considering assertions during an EER Assurance engagement and believe that doing so is reflective of current practice. However, we find the description of “categories” of assertions to lack clarity. ISAE 3410 and ISA 315 already contemplate “categories” of assertions, as noted in the guidance. In our view, the categories in those standards are described in a different (and clearer) way to the content in paragraphs 171-183 of the guidance. We believe the extensive discussion of “categories” of assertions and how they may map back to the characteristics of suitable criteria is over-complicating the concept of assertions and found that the proposed guidance hinders rather than helps the practitioner's thought process. In our view, this is also likely to add further confusion when considering materiality and assessing misstatements. We provide a suggestion for how to simplify the discussion of assertions in our response to question 2 in appendix 1.

Background and contextual material

While the main body of the guidance is drafted in a manner that is clear and uses ‘plain English’, the background and contextual information is less easy to read. The content is quite theoretical and difficult to understand in places. For the reasons described above, we also do not support the material in this section further describing “qualities”. The International Framework for Assurance Engagements already includes sections on underlying subject matter and criteria, together with other useful “educational” material, and is written in a more readily understandable style. Consequently, we question whether the proposed background and contextual information will add to users’ understanding of the guidance and suggest that the Board consider removing it. We comment further in our response to question 6 in appendix 1.

See also our responses to questions 1, 2, 3 & 6 in appendix 1 for other observations on clarity and structure.

Relationship with ISAE 3000 (Revised)

An important criterion for the proposed guidance is that it does not introduce any new requirements beyond those in ISAE 3000 (Revised) nor remove or change any of the requirements or application material in ISAE 3000 (Revised). That is important both in actuality and in perception. We have one significant comment in that regard.

The entity’s materiality process

We agree with the need to understand how the preparer has approached the preparation of the EER report, including what to include. In doing so, the practitioner actively considers, applying professional scepticism, the rigour and robustness of management’s process to be satisfied that what is expected to be included appears reasonable based on their understanding of that process and in light of the need for the engagement to have a rational purpose.

We are concerned that the guidance implies an obligation on the practitioner to evaluate or form an independent conclusion on the preparer’s assessment. For example, the proposed guidance refers to “reviewing” the process and also the “appropriateness and outcomes” of the materiality process.

Management remains responsible for determining what information is to be included in their reporting and while we understand that many EER frameworks are worded in such a way that leaves room for interpretation, it is important not to convey an impression that the assurance practitioner is capable of independently determining what should be reported.

We suggest that this section make the above principles clearer, as well as clarifying what is meant by the term reviewing, to avoid the potential for misinterpretation. See also our response to question 4 in appendix 1.

In conclusion, we are supportive of the development of guidance to support practitioners in applying ISAE 3000 (Revised) in practice. Subject to our key comments above and more detailed comments and suggestions in the appendix to this letter, we are comfortable with the direction being taken in the phase 1 guidance and hope our observations in this letter and the accompanying appendices provide useful input in taking the guidance forward. As a two-part process, final views on all of the guidance, both phase 1 and phase 2, can only be judged once the guidance can be read in its entirety - in that respect, our comment on length and how that affects the perceived usefulness of the guidance is important. We have also identified, in our detailed responses in appendix 1, a number of areas where important linkages in the guidance will be needed, which will need to be assessed once the document is complete. We look forward to providing our further views on the proposed IAEPN in 2020.

We would be happy to discuss our views further with you. If you have any questions regarding this letter, please contact Diana Hillier, at diana.hillier@pwc.com, or me, at james.chalmers@pwc.com.

Yours sincerely,

signature

James Chalmers
Global Assurance Leader

PwC response to IAASB Consultation Paper on Extended External Reporting (EER) Assurance - Appendix 1 - Responses to specific questions

Publication date: 21 Jun 2019

1. Does the draft guidance adequately address the challenges for practitioners that have been identified as within the scope of the draft guidance developed in phase 1? If not, where and how should it be improved?

Subject to our comments below, we believe the draft guidance appropriately describes the key areas of challenge faced by practitioners that have been identified as within the scope of the draft guidance developed in phase 1.

Preconditions for Assurance

ISAE 3000 (Revised) sets out the preconditions for an assurance engagement, one of which is that the engagement has a rational purpose. We believe that further guidance in applying this criterion to prospective engagements would benefit practitioners. For example, the considerations described in the box under paragraph 49 states (emphasis added) that “Assuming the subject matter information is expected to address the significant information needs of intended users, whether any aspects of the subject matter information are to be excluded….”. While it is not the responsibility of the practitioner to independently identify the intended users and establish their needs, we believe it would be useful to emphasise that it is important to consider how the entity has identified the intended users and their information needs, applying a sceptical mindset, and not to simply assume that the information is expected to meet all such needs. As we note in response to question 3, there is a clear linkage here between the proposed chapter on the entity’s materiality process (chapter 8), which addresses the identification of intended users and what would aid their decision-making, and consideration of the rational purpose precondition. Better linkage of this guidance would be useful.

With respect to the final bullet of the same considerations box (based on paragraph A56 of ISAE 3000 (Revised)) that addresses inappropriate association by the entity of the practitioner’s name with the subject matter or the EER report, we believe expanding this guidance would be helpful. It is important that a practitioner considers the rationale for their requested involvement - is the nature of the engagement and the underlying subject matter relevant to the practitioner's field and knowledge? Considering why the practitioner is being asked to perform the engagement and to issue a report is relevant in determining whether the engagement has a rational purpose.

Looking ahead to phase 2, as the guidance on the scope of the engagement is developed, it will equally be important to link this content to the guidance in (current) chapter 8, which further addresses the selection of topics and elements to be included in the EER report and how this relates back to the needs of the intended users and the overall purpose of the engagement. As phase 2 progresses, further consideration as to how the relevant content in chapters 2 and 8 is best presented may be necessary.

Materiality

Consideration of materiality by the practitioner is important and introducing this only in chapter 9 may be unhelpful. We believe signposting this guidance earlier in the document would be useful. Consideration of materiality in planning an engagement provides essential context to being able to identify and assess the risks of material misstatement and planning the appropriate responses. This is likely to be an area where practitioners will find practical guidance useful. For example, how to consider materiality in the context of a whole EER report versus in relation to individual subject matter elements within the report, depending on the nature of the practitioner’s conclusion(s) in the assurance report, and the related implications for the practitioner’s work effort and evidence needed to express that conclusion. Further, addressing relevant considerations when dealing with multiple unrelated subject matter elements and multi-location engagements would also be useful. Again, the linkages with chapter 8 will be important.

Maturity in governance and internal control

Chapter 6 includes guidance on the practitioner’s consideration of the preparer’s system of internal control as part of the overall preconditions when making an acceptance decision. We agree that the level of understanding needed will be affected by the size and complexity of the entity, but that this will also be affected, often more so, by the complexity of the subject matter and related measurement/ evaluation. We believe it is also important to be clear that a mature system of internal control is not an absolute prerequisite for assurance, so long as the practitioner is satisfied that the pre-conditions for assurance contemplated by ISAE 3000 (Revised) can be met. We believe these matters could be better reflected in this section, including in relation to paragraphs 72-74.

Narrative and future-orientated information

Overall, we consider the guidance in Chapters 10 and 11 to be a fair summary of the challenges associated with narrative and future-orientated information, respectively. However, with respect to future-orientated information, we believe the guidance could better draw out that there is likely to be a stronger evidential basis for a forecast that is supported by a stable history of accurate forecasting, as compared to future-orientated information that is entirely based on subjective judgement with no history. See also our response to question 2 on the inclusion of further examples.

2. Is the draft guidance clear and easy to understand, including through the use of examples and diagrams, and the way terminology is used? If not, where and how should it be improved?

Subject to our overarching comment on length, our comments below, and in response to question 6, we believe the guidance is clear and easy to follow.

Subject matter element qualities

The introduction of the term “qualities” is causing confusion. In outreach with practitioners that conduct engagements of this nature, the term was not widely understood and the consensus from our practitioners was that it should be removed. We believe that a simpler concept of “characteristics” of the subject matter elements that are to be measured will be more easily understood and applied. See also our response to question 6 on the accompanying background and contextual information where the concept of “qualities” is further addressed.

Assertions

While ISAE 3000 (Revised) does not refer to the use of assertions, we support the guidance on considering assertions during an EER assurance engagement and believe that this is reflective of current practice. However, we find the description of “categories” of assertions to lack clarity. ISA 315 6 and ISAE 3410 already contemplate “categories” of assertions as noted in the guidance. However, in our view the categories in those standards are described in a different (and clearer) way to the content in paragraphs 171-183, being:

  • ISA 315 - (i) assertions about classes of transactions and events, and related disclosures, for the period under audit and (ii) assertions about account balances, and related disclosures, at the period end.
  • ISAE 3410 - (i) assertions about the quantification of emissions for the period subject to assurance and (ii) assertions about presentation and disclosure.

We believe the extensive discussion of “categories” of assertions and how they may map back to the characteristics of suitable criteria may be over-complicating the concept of assertions such that the intended guidance hinders rather than helps the practitioner's thought process. This section of guidance gave rise to most questions in outreach with current practitioners. At its simplest, assertions are most easily thought of in terms of “what can go wrong” - what is it about that subject matter that could give rise to a material misstatement?

We suggest focusing on (i) describing the concept of assertions and (ii) how they can be used by the practitioner in considering the types of misstatements of the subject matter information. In doing so, recognising that some practitioners performing these engagements may not have recent audit experience to draw upon or be familiar with ISAE 3410, we believe there would be value in including (potentially in an appendix) a more general description of each assertion, how the information may be misstated and how assertions otherwise may impact a practitioner’s testing approach, by providing a few examples i.e., extending the concept explored in paragraphs 182 and 184.

With respect to “neutrality”, we suggest that “freedom of bias” is the better term to use and is best addressed as part of considering other assertions, rather than a discrete assertion, or category of assertions, in its own right. This avoids the risk of confusion with the concept of neutrality as a characteristic of suitable criteria.

Narrative and future-orientated information

Chapter 10 provides useful guidance on how a practitioner may approach narrative information, in particular the example in paragraph 195 on how to potentially address sentences or sections of significant narrative information. We believe this is an area where a more detailed worked example that includes the specific criteria, as well as additional shorter examples covering different types of narrative information, would be worthwhile. This is a challenging area and illustrations are likely to add most value here. It is unclear to us, however, whether the example in paragraph 195 was intended to illustrate an approach to presentation of the entity’s final EER report, or merely an approach to the practitioner’s documentation of their work performed. We believe the latter, but clarity would be welcomed.

We also suggest that examples that illustrate how to consider forward-looking scenarios would also be useful.

Evaluation uncertainty

Chapter 12 of the guidance includes reference to “evaluation uncertainty”. Guidance is needed on how this term differs from “measurement uncertainty”.

3. Do you support the proposed structure of the draft guidance? If not, how could it be better structured?

We believe the proposed structure of the draft guidance generally follows a logical approach to performing an assurance engagement. Given the close relationship between the consideration of the purpose of the engagement and the intended users and the preconditions for the engagement, we feel there is an argument for locating Chapter 8, Considering the Entity's ‘Materiality Process’, earlier in the document, for example, to follow chapter 3 - see also our response to question 1.

We believe this would also be useful in setting relevant context for current proposed chapter 6 on consideration of the system of internal control. Guidance on the entity’s materiality process around determining what is to be reported, and how, and what is ‘material’, will to a large extent drive the consideration of the internal controls that are needed to identify, record, process and report the subject matter information. We comment separately on the content of the materiality process section in our response to question 4 below.

With respect to narrative information, we suggest that Chapter 3, Agreeing the Scope of an EER Assurance Engagement, should include some introductory material that highlights the importance of narrative information in the context of EER, in particular in helping build the practitioner's understanding, in assessing the risks, and in designing procedures. While Chapter 10 sits logically within the structure of the proposed guidance, it is important to emphasise that such information be considered early in the engagement.

4. Do you agree that the draft guidance does not contradict or conflict with the requirements or application material of ISAE 3000 (Revised), and that the draft guidance does not introduce any new requirements?

Chapter 8 of the guidance describes the entity’s “materiality process” as the process the entity goes through in order to decide what is of sufficient relevance for users of the EER that it warrants inclusion within the EER report (where the criteria themselves do not stipulate this). It also suggests a method that can be adopted by practitioners in order to obtain an understanding of this (the diagram following paragraph 130).

We agree with the need to understand how the preparer has approached the preparation of the EER report, including what to include. In doing so, the practitioner actively considers, applying professional scepticism, the rigour and robustness of management’s process to be satisfied that what is expected to be included appears reasonable based on their understanding of that process and in light of the need for the engagement to have a rational purpose.

We are, however, concerned that the guidance implies an obligation on the practitioner to evaluate or form an independent conclusion on the preparer’s assessment. For example, the proposed guidance refers to “reviewing” the process and also the “appropriateness and outcomes” of the materiality process.

Management remains responsible for determining what information is to be included in their reporting and, while we understand that many EER frameworks are worded in such a way that leaves room for interpretation, it is important not to convey an impression that the assurance practitioner is capable of independently determining what should be reported. The practitioner may express views to the preparer that what is being reported may not appear appropriate or relevant, but guidance should not imply the practitioner is the arbiter on this point.

We suggest that this section make the above principles clearer, as well as clarifying what is meant by the term reviewing, to avoid the potential for misinterpretation. Similarly, we find reference to how “effective” the entity’s materiality process was (also in the diagram) to be unhelpful - effectiveness is a subjective concept and we suggest removing this term. The key test should be whether the preconditions for assurance have been met.

We do agree, however, with the principle in paragraph 129 that “the extent to which” the practitioner needs to understand the entity’s materiality process may depend on the scope of the assurance engagement. We believe the guidance that follows needs to avoid implying the contrary - for example, avoiding phrases such as “the suggested process for a practitioner” (paragraph 130).

Lastly, given materiality is already a commonly understood concept for practitioners in the context of an assurance engagement, it may be more helpful to avoid using this term in describing the entity’s process. Referring to considering the entity’s “scoping” or “basis of preparation” process may limit the potential for confusion with the existing concept.

Do you agree with the way that the draft guidance covers matters that are not addressed in ISAE 3000 (Revised)?

Our comments on matters not addressed by ISAE 3000 (Revised) are set out in our responses to the following questions:

  • Subject matter element “qualities” - question 2.
  • Assertions - question 2.
  • Materiality process - question 4.

6. Do you agree that the additional papers contain further helpful information and that they should be published alongside the non-authoritative guidance document?

While the main body of the guidance is drafted in a manner that is clear and uses ‘plain English’, we feel the background and contextual information is less easy to read. In particular, for example, we find the “understanding the nature of evaluation and measurement of subject matter elements” section to be quite theoretical and challenging to comprehend. The illustrative example is particularly complex to understand. Simpler language, or simpler examples, may be beneficial.

As noted in our response to question 2, we believe the introduction of new concepts such as “qualities” is adding complexity and, in part, resulting in the need for further explanation within the proposed appendix. Further, we believe the examples in the “understanding the nature and role of criteria” may confuse, rather than aid, understanding, by referring to both “expressions” of various things, as well as “characteristics”. We believe the multitude of terms is unhelpful - it is unclear how “qualities” are to be distinguished from these other attributes. As stated above, we recommend simply referring to “characteristics” (or potentially “attributes”) of the subject matter element.

In addition, we also note that the IAASB’s International Framework for Assurance Engagements already includes sections on underlying subject matter and criteria, together with other useful “educational” material, and refers to “characteristics” of different subject matters. We find this material to be written in a more readily understandable style.

Taken as a whole, for the reasons described above, we question whether the proposed background and contextual information will add to users’ understanding of the guidance. We suggest that the body of the guidance should address all appropriate contextual content that will aid practitioners in understanding how to approach such engagements. If deemed necessary to refer to additional “educational” content, we would instead suggest referencing the International Framework for Assurance Engagements.

We do, however, support the proposed “four key factor model for credibility and trust in relation to EER” paper. We believe this has educational value as a stand-alone paper.

7. In addition to the requests for specific comments above, the IAASB is also seeking comments on the matters set out below:

  1. Stakeholder Perspectives—Respondents representing stakeholders such as preparers (including smaller entities) of EER reports, users of EER reports, and public sector entities are asked to comment on the questions above from their perspective.
  2. Developing Nations—Recognizing that many developing nations have adopted or are in the process of adopting the International Standards, the IAASB invites respondents from these nations to comment, in particular, on any foreseeable difficulties in using the draft guidance in a developing nation environment.
  3. Translation—Recognizing that many respondents may intend to translate the final guidance for adoption in their own environments, the IAASB welcomes comments on potential translation issues.

No specific comments.

PwC response to IAASB Consultation Paper on Extended External Reporting (EER) Assurance - Appendix 2 - Detailed comments

Publication date: 21 Jun 2019

The section below sets out our other observations and editorial comments by paragraph.

Paragraph and Comment

Paragraph 21 – We suggest the addition of “the practitioner to exercise” before “significant professional judgement”.

Paragraph 24 – We are concerned this paragraph could be read as implying that the consideration of suitability of criteria would come after acceptance and continuance. The aim should be to have as much information to consider whether the criteria are suitable before accepting the engagement.

Paragraph 36 – We suggest the following edit: “....’other information that is included in a document together with that contains the information….”.

Paragraph 69 – It would be useful to provide additional examples of relevant considerations a practitioner may take into account when information is obtained from an external information source.

Paragraph 74 – It is unclear how the physical location plays into this consideration.

Paragraph 82 – We do not believe it is clear that “elements” and “qualities” are distinct sub-headings that relate to the separate items in those particular columns. Numbering each heading and related statement might clarify this.

Paragraph 96 – When the underlying subject matter is subject to high measurement uncertainty, the criteria for presentation / disclosure often becomes more important so that the inherent uncertainty is clear in what is presented.

Paragraph 100 – We suggest including that consideration of changes in the criteria during the acceptance and continuance decision is also important.

Paragraph 151 – It is unclear in point (e) why changes need to be irreversible to be a relevant impact. We suggest deleting this word.

Paragraph 160 – This sentence is unclear. We suggest this be re-drafted to better convey the meaning as explained in the given example.

Paragraph 191 – We suggest the following edit to the last sentence: “.....the criteria cannot are not suitable if they result in…..”.

Paragraphs 209 & 211 – We recommend deleting the word “ordinarily” before “not in a position to predict the future” in both paragraphs. This is a fact.

Paragraph 224 – This seems to be unduly prescriptive in its suggestion. If retained, we suggest changing “It may be helpful” to “A practitioner may choose to…”.

Throughout the guidance we recommend that “when” be used rather than “where” when referring to situations or circumstances that may occur.

Four Key Factor model

Paragraph 4 – It is unclear what is meant by “other external inputs relating to the EER report to which the user has access”.

Paragraph 26 – We suggest clarifying if this paragraph is referring to the preparer or practitioner in respect of ensuring the consistency of the information in the EER with other sources of information.

Paragraph 32 – It is unclear what is being suggested by “transparency about the competence of those performing the professional service”. We also suggest that “meet” is replaced with “comply with” in the second sentence with respect to independence requirements.

Paragraph 33 – We suggest the following edit in the last sentence: “....periods and with other entities that prepare EER reports prepared by other entities.

PwC response to the IAASB's Proposed Strategy for 2020-2023 and Work Plan for 2020-2021

Publication date: 04 Jun 2019

pdf IAASB Strategy PwC Response Letter

For the attention of Prof. Arnold Schilder Chairman
International Auditing and Assurance Standards Board 529 Fifth Avenue, 6th Floor
New York, New York, 10017
USA

[Submitted via IAASB website]

4 June 2019

IAASB Consultation Paper – Proposed Strategy for 2020–2023 and Work Plan for 2020–2021

Dear Prof. Schilder

We1 appreciate the opportunity to comment on the IAASB’s proposed strategy for 2020-2023 and work plan for 2020-2021.

Overall comments - Planning for uncertainty

We support the Board moving forward with its proposed strategy and work plan.

As a global network, we use the ISAs as the common policy base for our methodology. Using the ISAs helps us to support the quality of our audits across our network, in the public interest, and to manage our multi-national audits. For these reasons, we support the proposed goal of the Board of developing robust global auditing and assurance standards that are generally accepted worldwide.

We also agree that the Board’s priority in its work plan should be to progress to finalisation the key standard revision projects that are currently underway. While this will largely dominate the Board’s work plan over the next few years, these are important revision projects that are responding to input received from the Board’s stakeholders.

We recognise that, in many respects, this is a challenging time for a global standard setter. In certain jurisdictions, there are significant questions being asked about the future of audit and whether the auditing model, and standards that underpin it, remain fit for purpose. And, as we note in the following section, emerging issues such as Blockchain and artificial intelligence are raising challenging new audit questions. The IAASB needs to be fully engaged in the debate on these critical issues. A clear strategy and work plan that takes these matters into account is the first step in demonstrating the IAASB’s commitment to tackling these challenging questions. Subject to our comments below, we believe the document achieves this goal. Demonstrating a commitment and ability to respond nimbly to the outcomes of those debates will also be important.

Others are challenging whether the current global standard setting model remains fit for purpose for the future, creating unprecedented uncertainty about the IAASB’s future structure and operating model. We agree that the IAASB should not stand still, and support the Board keeping focussed on planning its strategy and activities for the 2020-2023 period. Pending the outcome of the Monitoring Group’s consultation process, what is important is strategic planning for how the projects and other work being undertaken by the Board can transition to any future model, without any significant adverse disruption.

Strategic goal, themes and actions

We support the IAASB’s defined goal of sustaining public trust in financial and other reporting through high quality audit and other services, delivered via robust global standards. Trust and confidence in the information needed for decision-making is vital to support the effective functioning of markets and economies.

Suggestions for clarification and emphasis

While we support the proposed overall content of the strategy document, we have identified a number of areas that we believe could be clarified or that may warrant further emphasis:

  • As well as the standards being capable of consistent and proper implementation, we believe their general acceptance will be influenced by whether the standards are perceived to be relevant, scalable, forward-looking and practicable. Therefore, those attributes should be, in our view, an integral part of the goal, rather than presumed as part of the stakeholder value proposition, which otherwise address the how, rather than the what.
  • Reflecting on the principles of effective quality management being proposed by the Board for firms in ISQM 1, we believe the Board may wish to reflect on whether it would be appropriate to apply these principles to its own work. Taken together, the “Goal”, “Keys to our success” and “Our stakeholder value proposition”, in essence, reflect the Board’s objectives. We believe the Board could more clearly articulate the risks it sees to achieving these objectives, many of which may be closely linked to the environmental drivers, such that it is clearer to stakeholders how the Board’s planned strategic actions and activities (the Board’s “responses”) are responsive to the identified risks, enabling the Board to meet its stated objectives. Doing so would improve the strategy document and demonstrate the robustness of the Board’s strategy and plan. We provide some further observations on the proposed “Keys to success”, “Stakeholder value proposition” and “Environmental drivers” in our response to question 1 in the appendix to this letter.
  • While we recognise the pressure on the Board to be seen to be able to develop or revise standards more quickly, it is important to the credibility of the Board and its standards that sufficient time be taken to ensure proposed new or revised standards are understandable, scalable and have benefited from robust consideration of practical implications - areas that have been highlighted as of significant concern in feedback on recent exposure drafts, in particular ISA 540 (Revised) and ISA 315 (Revised). It is important that the Board reflect on why - aligned to the key success factor of listening, learning, and adapting. We believe the Board ought to build in a “root-cause” element to its process, to better understand the causal factors that led to that feedback. This could allow enhancements to be made to ongoing and future standard-setting projects, building an element of continuous improvement into the standard-setting processes.
  • Technology is changing how audits are performed and evidence obtained. We acknowledge that the Board has technology as a key consideration in all of its current standard setting projects. However, we believe efforts in this area need to be further reinforced within the overall strategy. Increasingly, businesses are operating in a digital environment, with information only available in electronic form. To ensure that the ISAs, and audit, remain relevant, we believe the IAASB needs to be thinking about how audit evidence cafn be obtained in such an environment. At the same time, advances in tools and techniques, including artificial intelligence, is giving rise to questions about how such tools affect or change risk assessment and the auditor’s approach to obtaining evidence. The IAASB’s proposed project on ISA 500 (Audit Evidence) needs to explore these significant questions to determine whether consensus with the IAASB’s stakeholders, including national standard-setters (NSS), can be reached and changes made as necessary to the standards, which may also necessitate changes to other standards. A more holistic strategic review of the standards through the lens of technological advances may be necessary. We comment further on this topic in our response to question 1 in the appendix to this letter.
  • Scalability is a significant challenge for the Board. Retaining support for the ISAs as the basis for high quality financial statement audits that are adopted in national standards is paramount to the IAASB’s success and recognition as the global auditing standard setter. The ever- increasing length and complexity of the standards, perceived increase in their specificity about not just outcomes, but also process, and the resulting implications for audits of smaller-to- medium sized (“less complex”) entities, is a growing threat to the continuing adoption of the ISAs. There is a risk of jurisdictions actively considering de-recognising certain ISAs for certain segments because they are no longer seen as fit-for-purpose. While recognising that the Board has to manage the competing expectations of different stakeholders, the proposed changes in drafting style to address “scalability” in standards under revision may not be seen as going far enough, or as simply acknowledging but not really addressing the underlying issues. We recognise that a separate consultation on audits of less complex entities has been issued by the Board. However, we believe the magnitude of the underlying issue could be better reflected in the strategy.
  • Coordination with the IESBA is vital in demonstrating effective and strategic revisions to standards. Within the context of the Monitoring Group’s review, one of its key areas of concern is effective collaboration and coordination between the IESBA and the IAASB. While we acknowledge the actions taken by both Boards to seek reciprocal input on projects that affect each other’s work, we believe it is regrettable that the two Boards were unable to align their strategy and work plan periods prior to 2023, and there continue to be examples where the alignment stakeholders might reasonably expect is not being achieved. It would be useful to better evidence the planned efforts to demonstrate effective and strategic cooperation during this intervening period.

Work plan for 2020-2021

We support the key guiding considerations. We believe it is appropriate to reiterate these overall guiding considerations as an overlay to the proposed “Framework for Activities”, or as considerations to be applied to the outcome of the research phase.

As noted, much of the work plan for 2020-2021 is dictated by the projects commenced during the current strategy period. It is appropriate that the focus be on bringing the projects on ISA 315, Quality Management, ISA 600 and ISA 500 to successful completion.

With respect to the specific activities and actions described:

  • We highlight the importance of the proposed project to revise ISA 500. Many significant questions raised in respect of the appropriate exercise of professional scepticism were in fact questions about the sufficiency of audit evidence. And, as noted above and described in our response to question 1, technology is increasingly challenging how auditors think about risks of material misstatement and how to obtain audit evidence. Ensuring the scope of this project is appropriately defined, with clarity on the issues to be addressed, is essential and the challenge in building consensus not underestimated.
  • We support the development of practical implementation support materials for new and revised standards. With a focus on clearer, principles-based, scalable standards there may often be a need for effective examples and other supporting materials that enable effective implementation. In particular, ISA 315 (Revised), ISQM 1 and ISA 220 (Revised) are likely to need significant implementation support. Others, in addition to the Board, have a role to play in this regard. A balance is needed between the Board developing the implementation guidance itself, as an integral part of standards development, and the Board recognising the need for implementation guidance and collaborating with others to deliver it.
  • We also support post-implementation reviews on the Board’s recently issued standards to identify if they are meeting their objectives and also if implementation support materials have been effective. This will be particularly important as ISA 540 (Revised) and ISA 315 (Revised) become effective, and, in due course, the revised quality management standards.

Work plan for 2022-2023

Notwithstanding the expected completion of the ISA 500 project in the preceding work plan period, we believe an ongoing focus on developments in technology, and how the IAASB’s standards may need to further evolve to reflect practice, will remain important. In this period, we suggest the IAASB’s other priority should be the development of implementation support materials for the revised group audits standard and commencement of planning for post-implementation reviews of ISA 540 (Revised) and ISA 315 (Revised).

We have responded to the individual questions posed in the consultation document in the appendix to this letter.

We would be happy to discuss our views further with you. If you have any questions regarding this letter, please contact Diana Hillier, at diana.hillier@pwc.com, or me, at james.chalmers@pwc.com.

Yours sincerely,

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James Chalmers
Global Assurance Leader

1 This response is being filed on behalf of the network of member firms of PricewaterhouseCoopers International Limited and references to “PwC”, “we” and “our” refer to the PwC network of member firms.

PwC response to the IAASB's Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Appendix 1 - Responses to specific questions

Publication date: 04 Jun 2019

Comments are welcome on whether:

1. You agree with Our Goal, Keys to Success and Stakeholder Value Proposition (see page 6), as well as the Environmental Drivers (see page 7).

We support the IAASB’s defined goal of sustaining public trust in financial and other reporting through high quality audit and other services, delivered via robust global standards. Trust and confidence in the information needed for decision making is vital to support the effective functioning of markets and economies.

As well as the standards being capable of consistent and proper implementation, we believe their general acceptance will be influenced by whether the standards are perceived to be relevant, scalable, forward-looking and practicable. Therefore, those attributes should be, in our view, an integral part of the goal, rather than presumed as part of the stakeholder value proposition, which otherwise address the how, rather than the what.

Reflecting on the principles of effective quality management being proposed by the Board for firms in ISQM 1, we believe the Board may wish to reflect on whether it would be appropriate to apply these principles to its own work. Taken together, the “Goal”, “Keys to our success” and “Our stakeholder value proposition”, in essence, reflect the Board’s objectives.

We find the articulation of the Board’s “Keys to our success” mischaracterised. We interpret these as not keys to success, but rather two high-level objectives, which are supported by the stakeholder value proposition. Fostering confidence is important, but we consider that this “objective” should go further, by describing the importance of the Board “maintaining support for, and adoption of, its standards, by fostering confidence…”. As we comment in the environmental drivers section below, there is a risk of a reversal in commitment to adoption by national standard-setters of the ISAs. Therefore, we believe this should be a critical objective of the Board.

We agree (subject to our comments below) with the identified environmental drivers, but believe the Board could more clearly articulate the risks it sees to achieving its objectives, many of which may be closely linked to the environmental drivers, such that it is clearer to stakeholders how the Board’s planned strategic actions and activities (the Board’s “responses”) are responsive to the identified risks, enabling the Board to meet its stated objectives.

While we recognise the pressure on the Board to be seen to be able to develop or revise standards more quickly, it is important to the credibility of the Board and its standards that sufficient time be taken to ensure proposed new or revised standards are understandable, scalable and have benefited from robust consideration of practical implications - areas that have been highlighted as of significant concern in feedback on recent exposure drafts, in particular ISA 540 (Revised) and ISA 315 (Revised). It is important that the Board reflect on why - aligned to the key success factor of listening, learning, and adapting. We believe the Board ought to build in a “root-cause” element to its process, to better understand the causal factors that led to that feedback. This could allow enhancements to be made to ongoing and future standard-setting projects, building an element of continuous improvement into the Board’s standard-setting processes.

Environmental drivers

We agree with the broad topics set out as the environmental drivers that shape the opportunities and challenges faced by the Board. However, many of these represent complex matters that cannot fully be described in a few bullets, and include a number of underlying drivers and associated issues.

Certain drivers are also interconnected. For example, the increasing complexity of financial reporting is one of the drivers of increasing complexity in auditing standards, which in turn is raising questions over scalability. The articulation of these issues within the Board’s consultation on less complex audits may be useful material to bring across to the strategy document to help better explain the relationship of these drivers in the context of the Board’s forward strategy.

It is not always directly apparent how these environmental drivers are, or will, specifically impact upon standards and how they are reflected in the identified strategic themes and actions.

We suggest it would be helpful to provide a clearer indication of how the proposed strategic themes and actions relate back to the identified environmental drivers. To the extent relevant, the description of current projects and initiatives in Appendix 3 could also more clearly describe the extent to which they are considered to be responsive to these environmental drivers.

We highlight two specific drivers that we see as being critical to the success of the Board’s forward strategy:

Advancements in, and use of, technology

We agree that technology is changing how audits are performed and evidence is obtained. At the same time, technological advancements are changing the way organisations operate, which in turn further affects the way the auditor needs to think about how to audit the business.

Technological advancements have the potential to be harnessed to enhance audit quality, but it might also be a disruptor, fundamentally changing the whole audit proposition.

Technology can change both the scale and frequency of assurance providing activities. The framing of an audit as an annual process based on the testing of controls with limited tests of details reflects what was possible historically but is unlikely to reflect either the needs or expectations of stakeholders in a technology-enabled world.

The advent of artificial intelligence (“AI”) can change how an audit is performed significantly. It can both supplement the auditor’s understanding of risk as well as generate audit evidence. We believe unless standards recognise the ability of technology and AI in particular to perform activities previously reserved for human auditors, the ability to respond to profound changes in the quantity of data generated by companies and the changing expectations of stakeholders will be restricted.

A further result of the increased use of technology is that documentation is increasingly stored and made available electronically i.e. no physical version of the data ever existed. We believe that the IAASB needs to consider how data that is obtained electronically to support risk assessments and provide substantive evidence should be validated. In considering how the integrity of data can be established, the implications of new technologies such as those based on Blockchain which create immutable distributed ledgers are clearly relevant.

The IAASB’s proposed project on ISA 500 (Audit Evidence) needs to explore these significant questions to determine whether consensus with the IAASB’s stakeholders, including NSS, can be reached and changes made as necessary to the standards, which may also necessitate changes to other standards. A more holistic strategic review of the standards through the lens of technological advances may be necessary.

As the Board tackles these issues, the challenge will be to strike a balance between modernising the ISAs to be fit for purpose and reflective of technological auditing techniques, and avoiding requirements that inadvertently inhibit innovation - particularly if the audit is to retain its relevance to stakeholders.

Environment for small and medium sized entities

In certain jurisdictions, there are significant questions being asked about the future of audit and whether auditing standards remain fit for purpose. Retaining support for the ISAs as the basis for high quality financial statement audits that are adopted in national standards is paramount to the IAASB’s success and recognition as the global auditing standard setter.

The ever-increasing length and complexity of the standards, and the resulting implications for audits of smaller-to-medium sized (“less complex”) entities is a growing threat to the continuing adoption of the ISAs for all entities, in all jurisdictions. There is a risk of jurisdictions actively considering not adopting certain of the new ISAs being issued and/or de-recognising the ISAs for certain segments because they are no longer seen as fit-for-purpose. While recognising that the Board has to manage the competing expectations of different stakeholders, the proposed changes in drafting style to address “scalability” in standards under revision may not be seen as going far enough, or as simply acknowledging but not really addressing the underlying issues. In that regard, Theme C, on which we comment in response to question 2, is most directly relevant to the Board achieving its objectives.

2. You agree with ‘Our Strategy and Focus’ and ‘Our Strategic Actions’ for 2020–2023 (see pages 8 to 13).

We believe the proposed strategic themes, together with the proposed framework for activities (see question 3) provide an appropriate framework to guide the key areas of focus of the Board.

Our views on each theme are as follows:

Theme A

  • We support taking the appropriate time to ensure that final standards are robust and fit for purpose. See our further comments in response to question 4.

Theme B

  • See our comments on technology in response to question 1. The strategic actions described here do not, in our view, provide sufficient context as to the magnitude of the potential impact of technology on the audit. It would be useful to provide some more detail on this topic.
  • It is unclear as to what is envisaged by an assessment of the changing corporate reporting environment. For example, is this alluding to new accounting standards or more holistically around how entities report, including integrated reporting and reporting solely through digital means? Some additional context would help clarify.
  • See our comments on Theme E with respect to working with the IESBA.
  • See our comments in response to question 5 with respect to other possible topics on the IAASB’s radar.

Theme C

  • We agree that taking action in response to the feedback on the consultation on audits of less complex entities will be a top priority in the strategy period, in light of the calls for action from the SMP community and risk of national standard-setters diverging from the global ISAs.
  • We strongly support a focus on principle-based standards. See also our response to question 3 with respect to establishing clear guidelines or criteria to assess whether a proposed standard is achieving this aim, as well as being understandable, practical and scalable.
  • It is important to distinguish between identified deficiencies in the standards and implementation issues. If there is consensus that the requirements of a standard are clear, then seeking to make revisions to the standard to address its poor implementation, often making the standard longer and more complex, is unlikely to be the right response. Nor should the Board address issues that are driven by poor implementation by making the standards more directive about the approach to be taken or process to be followed (i.e., defining a methodology). Doing so inevitably results in standards that are less fit for purpose in all circumstances - more rules-based and driving a “tick the box” compliance approach to audit. Rather, what is needed is clarity as to objectives, the inputs and the expected outcomes - the what, rather than the how. Understanding root-causes of issues as a basis for determining whether standard-setting or further implementation support is the most appropriate response could be made more prominent within the framework for activities. Furthermore, implementation guidance can be very valuable, but often others, in addition to the Board itself, have not only a role to play in developing that guidance, but are best placed to do so. Such implementation guidance can be geared to different segments.
  • Digitisation of the standards would be useful in aiding accessibility.

Theme D

  • See our response to question 3 on the proposed framework for activities.
  • We support the Board looking at ways to better utilise technology to develop meeting materials and standards. Collaboration tools would help reduce elements of inefficiency in the current processes, freeing up valuable staff and board member time. We would also encourage greater use of technology to gather feedback from stakeholders (being careful to manage the possible risks of bias that its processes might inadvertently introduce).
  • We strongly encourage consideration of a “rapid response mechanism” to make targeted, limited scope, amendments to standards to address clearly defined issues. Arguably, a number of recent projects have suffered from scope creep, resulting in wholesale revisions to all aspects of a standard when the case for full revision was not fully supported by evidence of issues with all requirements. We believe this is an important principle to bear in mind in the current revision of ISA 600. Narrow scope maintenance may enhance the ability of the Board to be seen as responding in a more timely manner, including addressing emerging issues. However, in doing so, it is important that speed is not achieved at the cost of appropriate due process.
  • It is important that, during this strategy period, consideration be given to how the projects and other work being undertaken by the Board can continue under a future model, without any significant adverse disruption. That includes ensuring the Board has sufficient staff resources and mechanisms for obtaining appropriate technical input on its projects. Further considering the use of seconded staff may be appropriate.

Theme E

  • Effective collaboration is essential to the Board’s success:
    IESBA
  • In particular, it is vital that the Board demonstrates effective collaboration and coordination with the IESBA. While we acknowledge the actions taken by both Boards to seek reciprocal input on projects that affect each other’s work, we believe it is regrettable that the two Boards were unable to align their strategy and work plan periods prior to 2023, and there continues to be examples where the alignment stakeholders might reasonably expect is not being achieved. Continued efforts to demonstrate effective and strategic cooperation during this intervening period remains critical. For example, we suggest there may be potential significant implications for compliance with relevant ethical requirements arising from revisions to ISA 600. And, given its pervasive impact, a more combined approach to addressing the impact of technology would also be welcomed.
  • The IESBA’s recent strategy consultation identifies proposed projects that will have a direct bearing on the IAASB’s standards and we encourage proactive, rather than reactive, involvement to ensure balanced decisions are reached. For example, it is vital that the IAASB be engaged in projects relating to revising the definitions of PIE and listed entity, materiality and communications with those charged with governance.
  • Likewise, the IESBA needs to be fully engaged in the IAASB’s relevant projects impacting the Code. The IESBA’s recent strategy consultation notes projects looking at evolving technologies and service delivery models. There are clear areas of overlap with the IAASB’s current projects, and both Boards should leverage each other’s work.
  • From a stakeholder’s perspective, the aim ought to be to have joint exposure drafts, whereby the relevant changes to the auditing standards and the ethical standards are exposed as a package.
    Risk to quality of standards due to volume of consultations
  • The IAASB is currently consulting on three exposure drafts and has issued two further consultations, on audits of less complex entities and extended external reporting, in addition to this strategy consultation. This is at the same time as expected implementation of the significant revision to ISA 540. The volume of materials issued concurrently poses a risk to the number, quality and depth of responses from stakeholders.
  • To ensure meaningful scrutiny and input on proposed revisions, we strongly recommend seeking to avoid multiple concurrent consultations. Where this cannot be avoided, we believe additional emphasis must be placed on robust dialogue and outreach with the Board’s stakeholders, in addition to the formal responses received. We, therefore, support the proposed collaboration and outreach opportunities noted under this Theme.

3. You agree with the IAASB’s proposed Framework for Activities, and the possible nature of such activities (see pages 11 and 12), as set out in Appendix 2 (see pages 19 and 20).

We agree with the principle of “doing the right work at the right time”. We support the framework as described, much of which we believe is largely consistent with the Board’s current practices.

As described in our response to question 1, we believe that as part of ongoing monitoring of the Board’s processes it is important to assess the effectiveness of the Board’s activities and processes. That may include a root-cause approach to any perceived activities not functioning as intended, building an element of continuous improvement into the Board’s standard-setting processes.

Further, with respect to “revising and developing standards”, we believe it may be useful to develop guidelines or criteria to evaluate whether the proposed output of a project has appropriately addressed certain common attributes prior to exposure. For example, clarity, understandability, scalability, whether it is capable of practical implementation, whether expected benefits exceed identified costs, and whether the proposed changes are directly responsive to the identified reasons for the need for change and not subject to scope “creep”.

We support the importance of post-implementation reviews and note that this may be “lost” in the research phase. It may be useful to highlight visually that the research phase includes pre- and post- implementation activities.

4. You support the actions that have been identified in our detailed Work Plan for 2020–2021 (see pages 15 and 16). If not, what other actions do you believe the IAASB should prioritize?

We support the completion of the current ongoing standard-setting revision projects outlined in the work plan.

As noted in our response to question 1, the new or revised standards must be understandable, scalable and have benefited from robust consideration of practical implications. It is critical that the Board subject the exposure drafts and final standards arising from these projects to rigorous challenge, to evaluate whether they meet these tests.

We note the importance of the proposed project to revise ISA 500. Many significant questions raised in respect of the appropriate exercise of professional scepticism were in fact questions about the sufficiency of audit evidence. And, as noted above and described in our response to question 1, technology is increasingly challenging how auditors think about risks of material misstatement and how to obtain audit evidence. Ensuring the scope of this project is appropriately defined, with clarity on the issues to be addressed, is essential and the challenge in building consensus not underestimated.

With respect to implementation activities:

  • We support the development of practical implementation support materials for new and revised standards. With a focus on clearer, principles-based, scalable standards there will be a need for effective examples and other supporting materials that enable effective implementation. In particular, ISA 315 (Revised), ISQM 1 and ISA 220 (Revised) are likely to need significant implementation support. As noted above, others, in addition to the Board, have a role to play in this regard. A balance is needed between the Board developing the implementation guidance itself, as an integral part of standards development, and the Board recognising the need for implementation guidance and collaborating with others to deliver it.
  • We also support post-implementation reviews on the Board’s recently issued standards to identify if they are meeting their objectives and also if implementation support materials have been effective. This will be particularly important as ISA 540 (Revised) and ISA 315 (Revised) become effective, and, in due course, the revised quality management standards.
  • While the current project on Extended External Reporting is addressing assurance over broader reporting by entities, there continues to be demand for elements of an entity’s broader reporting to be covered by the audit itself. The post-implementation review of the revised auditor reporting standards, specifically the responsibilities of the auditor in accordance with ISA 720 (Revised), could usefully better understand global developments in this area.

5. There are any other topics that should be considered by the IAASB when determining its ‘information gathering and research activities’ in accordance with the new Framework for Activities. The IAASB has provided its views on tentative topics to be included in its ‘information-gathering and research activities’ (see page 10).

Given the already extensive workload of the Board, we have not identified any further topics that we believe need to be given consideration at this time. That is not to say that the Board need not maintain awareness of other international developments that it may need to respond to as events unfold, for example the outcome of ongoing consultations and reviews into audit taking place in the United Kingdom.

With respect to the list of items described on page 10:

  • See our comments on the Audit Evidence project and technology in response to questions 1 and 4;
  • We do not believe there is a current need for changes in the standards with respect to materiality;
  • It would seem prudent to assess the impact of proposed ISA 315 (Revised) on the response to assessed risks of material misstatement (ISA 330) before proposing revisions to that standard;
  • The IAASB recently published changes to ISA 250 on non-compliance with laws and regulations. We recommend deferring further consideration of this topic until the Board has assessed the impact of these changes (in combination with the revised Code of Ethics).

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021

Publication date: 23 Jul 2019

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Chairman's Foreward

Publication date: 23 Jul 2019

The IAASB’s current strategy period 2015–2019 has seen hard work on key standards. These projects covered the important subjects of auditing accounting estimates (ISA 540 (Revised)),i and the core risk assessment standard (ISA 315 (Revised)).ii In our flagship project on Enhancing Audit Quality, we have been addressing the fundamentals of the audit, including a focus on a proactive quality management approach and the application of professional skepticism. Some of these projects have taken longer than we originally anticipated, but we are confident that the new and revised standards will contribute to higher-quality audits.

While we have made many changes and improvements, some stakeholders have commented on the volume of change, and have challenged us to do more to consider the length and complexity of the standards, and the ability to implement them in less complex situations. Furthermore, the world continues to change at an ever-increasing rate, with complexity becoming more prominent, in particular in relation to technology. Thus there is some urgency to deal with changes that are needed to keep the standards relevant and fit-for-purpose.

We have already identified two new initiatives that will progress in earnest in 2019: one dealing with audits of less complex entities and the other on audit evidence, including how changes in the use of technology affect the gathering and evaluation of audit evidence. We will begin with research for both of these projects to provide important input to help us determine, with an open mind, the most appropriate actions to address the challenges. In the meantime, we will continue to think more about what can be done in the short-term in relation to automated tools and techniques, in particular those that are becoming more prevalent in our environment as technologies continue to evolve.

We are also mindful that the delivery of standards is only the first step. We will be committing to a focus on the implementation of the changes, working with others as necessary to support effective and efficient adoption of the changes. Fundamental to our work, and underlying many of our communication efforts with our stakeholders, is a significant outreach program.

Moving into our new strategy period is daunting but exciting. There is the unknown of the changes that may come from the Monitoring Group review, but at the same time we recognize that there is opportunity to enhance our operations, and meet the needs of all of our stakeholders, including the Monitoring Group. This may include the development and implementation of a framework for our activities, and strengthening our collaboration with the International Ethics Standards Board for Accountants (IESBA) as it advances its work. We will look for ways to innovate our processes, delivery mechanisms, and communications with our stakeholders. Changing processes and structures will take time, but the IAASB is confident that these changes will help it operate more effectively in addressing the challenges it faces.

This Consultation Paper has been developed bearing all of this in mind, and the IAASB welcomes the views of all stakeholders in helping the IAASB adapt as it moves forward in the medium-term.

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Prof. Arnold Schilder
IAASB Chairman

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Request for Comments

Publication date: 23 Jul 2019

This Consultation Paper was developed by the IAASB and informed by significant outreach efforts (see Appendix 1). Comments are welcome on whether:

  1. You agree with Our Goal, Keys to Success and Stakeholder Value Proposition (see page 6), as well as the Environmental Drivers (see page 7).
  2. You agree with Our Strategy and Focus and Our Strategic Actions for 2020–2023 (see pages 8 to 13).
  3. You agree with the IAASB’s proposed Framework for Activities, and the possible nature of such activities (see pages 11 and 12), as set out in Appendix 2 (see pages 19 and 20).
  4. You support the actions that have been identified in our detailed Work Plan for 2020–2021 (see pages 15 and 16). If not, what other actions do you believe the IAASB should prioritize?
  5. There are any other topics that should be considered by the IAASB when determining its ‘information-gathering and research activities’ in accordance with the new Framework for Activities. The IAASB has provided its views on tentative topics to be included in its ‘information-gathering and research activities’ (see page 10).

Comments are requested by June 4, 2019. In answering the questions, please explain why you agree or disagree with the IAASB’s proposals.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Our Goal, Keys to Success and Stakeholder Value Proposition

Publication date: 23 Jul 2019

Our mandate is straightforward. However, standard-setting itself is not, especially in a global context. The following messages frame the broad lens of our strategic thinking.

OUR GOAL

  • Sustained public trust in financial and other reporting, enhanced by high-quality audits, assurance and related services engagements, through delivery of robust global standards that are capable of consistent and proper implementation.

KEYS TO OUR SUCCESS

Achieving our strategy relating to our areas of focus:

  • Through our commitment to engage, listen and learn, and to lead and adapt in our global standard setting responsibilities.
  • By fostering confidence in the quality and relevance of our processes and standards, evidenced by the many jurisdictions (currently 128) using or committed to using our standards, including their oversight bodies (regulatory and inspection), and by user and practitioner communities.

OUR STAKEHOLDER VALUE PROPOSITION

  • Our Strategy: Public-interest focused activities and future-oriented processes and work plans that are viewed as meaningful in contributing to the achievement of our goal.
  • Our Standards: Globally relevant, scalable, forward-looking and operable; developed and implemented through activities that are timely and responsive to needs of our stakeholders.
  • Our Engagement with Our Stakeholders: Timely and meaningful dialogue with a broad range of stakeholders, including with regulatory, user and practitioner communities.
  • Our Work Plans: Focused on timely identification and appropriate resolution of issues that affect the global standards, while balancing speed and quality, capacity utilization, and coordination with others.
  • Our Methods: Rigorous and inclusive, yet nimble, leveraging external resources where feasible. Continuously reviewed and improved to better facilitate delivery of work plans.
  • Our Collaboration Efforts: Strengthened coordination and cooperation with, in particular, the IESBA and National Standard Setters (NSS).
  • Our Implementation Support on Major New and Revised Standards: Supporting the development of timely and effective implementation of the IAASB’s standards.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Our Opportunities and Challenges - Environmental Drivers

Publication date: 23 Jul 2019

Understanding our key opportunities and challenges, and balancing the needs of all of our stakeholders, is crucial to the continued use and ongoing adoption of our standards on a global basis. The most significant environmental drivers that have shaped our Strategy for 2020–2023 (Strategy) and Work Plan for 2020–2021 (Work Plan) include:

Advancement in, and Use of, Technology
  • Businesses and economies are increasingly affected by rapidly changing and evolving technologies (e.g., artificial intelligence, robotics, blockchain, cloud computing, social networks and new digital payment platforms).
  • Developments in the use of advancing technologies are having a revolutionary effect on audit and assurance engagements, including how automated tools (including automated data analytics) are used to perform work on such engagements, and the way that engagement teams are structured and interact.
Environment for Small- and Medium- Sized Entities
  • Increasing pressure regarding the scalability and proportionality of the standards, in particular the ISAs.
  • Changing audit thresholds are increasing the demand for other types of assurance or other services by small- and medium-sized entities (SMEs).
Increasing Complexity and Its Implications
  • The business environment is becoming increasingly complex because of, for example, ongoing globalization and advancing technologies. As a result, financial reporting standards are responding and becoming more complex.
  • Accounting practice is evolving - as transactions become more complex and financial reporting changes, more estimates and management judgments are needed.
Changing Reporting Needs of Stakeholders
  • Corporate reporting is evolving, with many users of corporate reports increasingly focusing on available non-financial information (e.g., sustainability reporting, reports addressing an entity’s governance and internal control and other forms of extended external reporting) and seeking assurance thereon.
Changing Expectations and Public Confidence in Audits
  • Decreasing confidence, and declining trust, in audits arising from continuing high levels of reported poor results of external inspections and recent high profile corporate failures in some jurisdictions.
  • Stakeholders’ expectations are also changing about what the standards should require the auditor to do, for example, in relation to the detection and reporting of fraud, and the consideration of going concern issues.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Our Strategy and Focus

Publication date: 23 Jul 2019

Adapting to the environment to meet stakeholders’ needs is key to our success. Our Strategy and Focus sets out how we intend to focus on timely identification and resolution of issues that affect our global standards in response to current and forward-looking challenges and risks to our standards. Delivery of our committed work is key to our success.

flowchart

THEME A:

COMPLETE OUR MAJOR AUDIT QUALITY ENHANCEMENTS AND ENABLE THEM TO ‘TAKE ROOT’

Prioritizing the completion of the key ISA and other projects underway at the start of 2020 is crucial, as is undertaking activities to focus on the effective and efficient implementation of the changes made to these and other core ISAs during the 2015–2019 strategy period.

THEME B:

FURTHER CHALLENGE AND ENHANCE THE FUNDAMENTALS OF OUR INTERNATIONAL STANDARDS

Core to our activities is revising and developing our standards on a timely basis to respond to the continuously changing environment (including the increasingly evolving technologies and automated tools being used by entities and auditors), and the changing needs of our stakeholders. This theme is vital to the continued use and ongoing adoption of our standards on a global basis.

THEME C:

DEVELOP WAYS TO ADDRESS COMPLEXITY, WHILE MAINTAINING SCALABILITY AND PROPORTIONALITY

Addressing the robustness of auditing standards in an increasingly complex business environment and the need to maintain their scalability and proportionality is a key focus area for us to make sure that our standards are fit-for-purpose for audits of all entities, regardless of their complexity.

THEME D:

STRENGTHEN AND BROADEN OUR CAPABILITY AND CAPACITY TO RESPOND BY INNOVATING OUR WAYS OF WORKING

Enhancing our processes is critical to our success, including using technology and appropriate resources to maximize the impact of our activities, thereby enabling us to respond on a more timely basis to issues and challenges.

THEME E:

DEEPEN OUR CONNECTIVITY AND COLLABORATION OPPORTUNITIES

Leveraging external resources and maintaining and building relationships with stakeholders to achieve globally relevant, progressive and operable standards.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Our Strategic Actions

Publication date: 23 Jul 2019

THEME A:

COMPLETE OUR MAJOR AUDIT QUALITY ENHANCEMENTS AND ENABLE THEM TO ‘TAKE ROOT’

Strategic Actions – In the strategy period commencing in 2020, we will:

  • Progress and complete, as a top priority, our projects on Quality Managementiii and Group Audits.iv Monitor the need for, and develop as necessary, implementation support for our projects on Quality Management and Group Audits.
  • Continue implementation support for ISA 540 (Revised)v and ISA 315 (Revised)1 vias needed.
  • Complete our Auditor Reportingvii and ISA 540 (Revised) Post-Implementation Reviews, report findings and determine and carry out necessary actions arising from these reviews.

THEME B:

FURTHER CHALLENGE AND ENHANCE THE FUNDAMENTALS OF OUR INTERNATIONAL STANDARDS

Strategic Actions – We will:

  • Complete the guidance for our Extended External Reporting (EER) initiative.vii
  • Identify and prioritize future actions through our research activities based on the assessment of:
    • The need for changes in the standards to address issues and challenges related to audit evidence, in particular in relation to evolving technologies and automated tools that are being used, as well as thinking more about how professional skepticism can be further enhanced within the ISAs.2 ix
    • Further implications on our standards of evolving technologies used by entities and auditors.
    • The changing corporate reporting environment.
    • Ongoing work of the IESBA that may require changes within our standards.
    • Other possible topics that have been on the IAASB’s radar, including:
      • Expectations of the role of auditors in connection with fraud and non-compliance with laws and regulations (for example, anti-money laundering) in financial statement audits.
      • Expectations of the role of auditors in connection with going concern in financial statement audits.
      • Consistency and rigor of audits in key performance areas, such as applying materiality, and responding to risks of material misstatement.
  • Continue our focus on professional skepticism in our ongoing ISA projects and consider what more can be done in this area.

THEME C:

DEVELOP WAYS TO ADDRESS COMPLEXITY, WHILE MAINTAINING SCALABILITY AND PROPORTIONALITY’

Strategic Actions – We will:

  • As a top priority, complete our information-gathering and research activities relating to Audits of Less Complex Entities,x which will inform the Board’s future deliberations about the most appropriate actions to address the identified issues and challenges.
  • Commit to continue considering how to develop principle-based standards and guidance that is clearly articulated, and able to be applied to a wide variety of circumstances.
  • Enhance the accessibility and ease of use of our standards, for example by digitizing the standards to enhance navigation and search functions.
  • In undertaking work in this strategic theme, the IAASB remains open-minded about the effort needed to achieve an outcome that is supportive of the needs of many of our stakeholders.

THEME D:

STRENGTHEN AND BROADEN OUR CAPABILITY AND CAPACITY TO RESPOND BY INNOVATING OUR WAYS OF WORKING

Strategic Actions – We will develop and implement a Framework for Activities (the “Framework”) so that we do “the right work at the right time.” As part of this theme, we will also further consider our capacity and whether further resources are needed to deliver on our committed actions effectively. Importantly, in implementing the Framework, leveraging technology for undertaking our work will be at the forefront of our minds. Key features of this Framework include:

  • Robust information-gathering and research activities as a cornerstone to future work streams, including:
    • Fact-finding activities to understand emerging issues and developments, which may also include consideration of findings from academic research, post-implementation reviews and other work already undertaken by NSS.
    • Defining the problem / issue / challenge we are addressing (including further understanding the causal factors).
    • An assessment of available options, including the impact of possible actions.
    • Scoping future projects.
  • Appendix 2 more fully describes the proposed information-gathering and research activities.
  • Mechanisms for addressing issues and challenges on a more timely basis, including:
    • Developing non-authoritative practical guidance.
    • Developing a process for ‘limited-scope’ revisions to standards (with appropriate due process to support more timely changes).
    • Considering whether to implement an ‘interpretations’ mechanism to help communicate Board intentions when originally setting the standards.

The diagram below captures our more formalized and structured approach to our activities (each of these activities is further described in Appendix 2). However, there are still many aspects of the Framework that will need to be further developed if this approach is supported by our stakeholders. At this stage, we also remain mindful that the Framework will need to remain adaptable so as to accommodate any further changes arising from the Monitoring Group review.

outreach_strategic_actions

THEME E:

DEEPEN OUR CONNECTIVITY AND COLLABORATION OPPORTUNITIES

Strategic Actions - We will:

• Continue to interact with the CAG. The IAASB’s CAG is a fundamental part of the IAASB’s engagement with its stakeholders and is a key element of the IAASB’s due process. The CAG is comprised of over 30 member organizations representing global regulators, business and international organizations, accountancy regional bodies and users and preparers of financial statements.

• Further enhance our coordination efforts with the IESBA.

• Explore new ways to expand our collaboration with NSS to optimize our activities.

• Further enhance working relationships with regulators, firms and others (as appropriate) to help understand their concerns, and further explore causal factors.

• Further explore whether the IAASB can collaborate, as appropriate, with the International Federation of Accountants (IFAC) and its various committees, in relation to implementation support activities.

• Continue to establish subject-specific Advisory Panels as needed to enable Task Forces and Working Groups to receive timely input on developing proposals from a broad range of relevant stakeholders.

• Continue our two-way liaison with the International Accounting Standards Board (IASB), providing input on auditability and verifiability of new and revised International Financial Reporting Standards, thereby contributing to the quality of financial reporting.xi

• Continue communication with our stakeholders through timely and meaningful outreach activities focused on:

  • Promoting adoption and effective implementation of the ISAs and our other standards, in particular for audits of less complex entities, emerging markets and the public sector.
  • Understanding issues that affect our standards, including financial reporting issues, implementation challenges, and opportunities for collaboration to enhance audit and other engagement quality.

1 On the basis that ISA 315 (Revised) is finalized in June 2019 as targeted.
2 The work of the Professional Skepticism Working Group and the Data Analytics Working Group may be amalgamated in the Audit Evidence project.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Our Work Plan for 2020-2021

Publication date: 23 Jul 2019

Our Work Plan is focused on the ongoing, timely identification of new issues that may affect our global standards, and timely analysis and resolution of these identified issues. In prioritizing actions to address the identified issues that are expected to have a meaningful effect on our goal over our strategy period, this Work Plan seeks to:

  • Provide a reasonable balance between the need for speed and quality of response;
  • Prioritize the use of available resources;
  • Depict the realistic prospects of identifying sources of additional resources; and
  • Illustrate the need for coordination with others.

KEY GUIDING CONSIDERATIONS

Given the competing demands for IAASB actions, we will consider the following in determining the most appropriate action, and how such action should be prioritized.

  • The significance of the benefits to the public interest, including the extent to which the action will further:
    • Enhance the quality and benefits of audit, assurance and related services globally;
    • Enhance engagements that are currently conducted on a widespread basis internationally or are expected to be in the near future; or
    • Facilitate high-quality financial and corporate reporting and enhance public confidence therein.

The time needed to undertake effective action in light of emerging practice, market demands and developing a response that is capable of international application.

The degree of urgency for addressing the particular matter, including the potential implications for the public interest if action is not taken or is delayed.

The degree to which an identified issue would be addressed effectively through change to the standards or through other appropriate action.

The pervasiveness of the matter and the global applicability of the potential actions in relation to entities of different sizes and complexity, different industries, and across jurisdictions.

OUR DETAILED WORK PLAN FOR 2020–2021

Our detailed Work Plan is presented below. This proposed Work Plan is our best estimate, at the time of publication of this Work Plan, for how we will progress the various projects and is subject to changes, especially given the nature of the issues and the complexities of the projects. During 2020–2021, we will be transitioning to more structured processes and activities around how we undertake our work (see Theme D above and Appendix 2). In order to effectively transition, time will need to be spent on how best to realign our activities.

Appendix 3 sets out a description of each of the projects carrying over from the IAASB’s Work Plan for 2019 to provide context for the IAASB’s Work Plan for 2020–2021.

Cells with an ‘X’ indicate that IAASB plenary meeting time is scheduled for a project, while the green highlighted cells indicate Working Group, Task Force or Staff expected activity on a project. Cells with an ‘E’ indicate the targeted publication of an Exposure Draft and cells with a ‘F’ indicate the targeted finalization of a project.

project_chart


project_chart_2


4 Due to the uncertain nature of the implementation activities at this time, specific Board discussions have not been presented. However, it is likely during the period of activity there will be Board plenary discussions, and this will be determined as the implementation support activities are developed for each project.
5 The findings from the Auditor Reporting Post Implementation Review, which will commence in 2019, may result in further work related to Auditor Reporting in 2020 and 2021.
6 The cornerstone of our new Framework will be robust information-gathering and other related research activities to further understand causal factors of issues and challenges and properly scope projects. Research activities will involve actions related to a number of topics that are currently in that phase (e.g., information gathering, scoping, post-implementation review etc.). However, these have not been separated out at this time as they have not yet been determined, but it is likely that there will be ongoing discussions by the Board of one or more of these topics at each Board meeting. Once a specific project is identified it will be separated on this forward agenda. The research phase will include the activities of our Innovation Working Group. For more information about the Innovation Working Group see the project page: http://www.iaasb.org/projects/innovation-working-group.
7 Time within Research Activities stream includes discussions by the IAASB regarding realignment of its activities, as necessary, into the structured streams set out in the
Framework for Activities
.
8 The outcome of information gathering and research activities may continue into 2020 (in which case there will be more Board discussions in 2020–2021) or may result in standard-setting or other activities (see footnote 6). If standard-setting is undertaken, the projection of Board plenary discussions and timing of exposure drafts and finalization will be presented in this Work Plan at the time when the project proposal is approved.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Managing Delivery of Our Strategy and Work Plan

Publication date: 23 Jul 2019

Accountability to our stakeholders about how our Strategy and Work Plan are being progressed is key to building trust and inspiring confidence. Communication and transparency about our actions is therefore an essential part of the IAASB’s activities in the 2020–2023 strategy period. We manage the delivery of our Strategy and Work Plan under the constant scrutiny by ourselves and our stakeholders in relation to:

  • Meeting targeted outcomes set out in our Work Plan.
  • Expanding global adoption of our standards, including adoption of new and revised standards by jurisdictions who are already using our standards.
  • Facilitating the implementation of new and revised standards.
  • Building stronger relationships with key stakeholders.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Appendix 1: The Development of this Consultation Paper

Publication date: 23 Jul 2019

THE DEVELOPMENT OF THIS CONSULTATION PAPER

The development of this Consultation Paper was informed by:

  • A Stakeholder Survey. We received 76 responses from a wide range of stakeholders including 12 responses from global organizations and one from a Monitoring Group member (the International Organization of Securities Commissions). A summary of the survey responses was discussed at our September 2018 meeting;
  • Ongoing global outreach by our members;
  • Targeted outreach with stakeholders we ordinarily do not hear from. This included outreach with individuals representing investor groups, groups representing those charged with governance, preparers of financial statements, smaller firms, regulators and academics; and
  • Discussions with the CAG.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Appendix 2: Detailed Description of the Framework for Activities

Publication date: 23 Jul 2019

DETAILED DESCRIPTION OF THE FRAMEWORK FOR ACTIVITIES

Research Phase

Structured Board activities and formalized projects and processes for:

  • Identifying and further understanding causal factors of issues and challenges within existing standards.
  • Information-gathering to understand emerging issues and developments to help determine a global need for action.
  • When applicable, post-implementation reviews to identify whether the standard is achieving its objective and, if not, whether further amendments should be considered. Post-implementation reviews may also lead to a new research initiative, or may result in a maintenance or implementation work stream.

Output from these activities is to assist the Board in deciding whether or not to add a work stream to its Work Plan, or to provide a more evidence-informed approach to revising or developing standards.

Revising and Developing Standards

A new standard-setting project is not started until the research phase has gathered sufficient information that a revision of a standard, or a new standard, is required, which is generally when:

  • The benefits to the public interest will enhance public trust in the project being undertaken;
  • The issues are pervasive and affect the global profession;
  • It is in the public interest to undertake the work, and not delay it; and
  • It is feasible to undertake the work within a realistic timeframe.

In developing changes, or a new standard, the Board follows due process to develop proposals for public consultation, analyzes the feedback, and refines the proposals to issue the final revised, or new, standard.

Developing Non- Authoritative Guidance

The development of non-authoritative guidance will start when the research phase indicates that non-authoritative guidance is required, which is generally when guidance to support application of the IAASB’s International Standards is needed and is considered to be an appropriate alternative to authoritative guidance. This may be the case when:

  • The marketplace is still developing and detailed standards could risk stifling innovation and experimentation.
  • The issues relate to a specific industry (e.g., banking or insurance industry) or a specific topic (e.g., financial instruments).
Narrow Scope Maintenance of Standards

Appropriate Board actions to maintain the standards may include developing processes for:

  • Narrow-scope amendments to a standard, following due process as appropriate, if that is determined to be the most appropriate action to address an urgent issue (rather than revising the entire standard); and
  • Supporting the application of the approved standards by providing interpretations to a specific question about a standard (i.e., a change to the standard itself is deemed unnecessary).
Implementation and Application of Standards

Board activities to support the implementation of new and revised standards by developing supporting materials, which may include:

  • Webinars;
  • Train-the-trainer events;
  • Implementation working groups to develop supporting materials as necessary (such as frequently asked questions, articles, etc.);
  • Targeted outreach; and
  • Working or coordinating with others, such as NSS or IFAC, in developing support materials as needed.
OutreachAll of the IAASB’s activities benefit immensely from the input of the IAASB’s wide range of stakeholders. The IAASB’s outreach activities will include continuing with its rigorous program of international outreach, including regular interactions with key stakeholder groups, such as its project advisory panels, as well as targeted outreach that may be project- or topic-specific.

IAASB Proposed Strategy for 2020-2023 and Work Plan for 2020-2021 - Appendix 3: Description of Projects and Initiatives

Publication date: 23 Jul 2019

 DESCRIPTION OF PROJECTS AND INITIATIVES

Projects Underway and IAASB Activities in 2017 to 2019

  1. In 2017 and 2018, the IAASB continued with revisions to a number of its key and foundational ISAs, as well as its quality management projects. The objective of these revisions is to address issues and challenges identified by the IAASB’s ISA Implementation Monitoring project and the Invitation to Comment, Enhancing Audit Quality in the Public Interest, A Focus on Professional Skepticism, Quality Control and Group Audits, as well as feedback from its stakeholders, through meetings, inspection findings, outreach and roundtables.
  2. In 2019, the IAASB will continue to progress finalizing its changes to ISA 315 (Revised) and developing guidance relating to EER, and will discuss the responses to the exposure draft relating to changes to Agreed-Upon Procedures engagements. Exposure Drafts of the Board’s proposals for ISQM 1, ISQM 2 and ISA 220 (Revised) will be published in February 2019.The IAASB will also progress its work in relation to audits of less complex entities, and plans to publish a Discussion Paper seeking stakeholder views in the second quarter of 2019.
  3. The approval of ISA 540 (Revised) in June 2018 signified the first revised standard to be completed as part of the IAASB’s work program ‘Addressing the Fundamental Elements of an Audit’ and the IAASB’s efforts in 2019 are now focused on implementation support activities.
  4. In 2019, the IAASB will also further consider how it can enhance its working relationships with the IFAC, NSS, regulators, firms and others (as appropriate) to help advance its implementation activities for ISA 540 (Revised), as well as for those projects targeted to be completed in the next 18 months.
  5. The IAASB will also start to plan for its future strategy period as proposed in this Consultation Paper. Time has been planned for discussions by both the Steering Committee of the IAASB, as well as the Board itself, to start to make the change to more focused activities within structured streams, including the development of related processes or criteria, as appropriate.
  6. More detail about the projects, including proposed timing, for the IAASB activities in 2019 can be found in the IAASB’s Work Plan for 2019.

Description of Projects for 2020–2021

Quality Management projects (ISQM 1, ISQM 2, ISA 220 (Revised))

This project addresses revisions to ISQC 1 and ISA 220, and the development of a new standard for engagement quality reviews, ISQM 2. The purpose of the revisions to ISQC 1 is to improve firms’ management of quality for all engagements performed under the IAASB’s International Standards. This will be achieved through the introduction of a risk-based approach to the management of quality and strengthening various aspects of the standard, including governance and leadership, resources, information and communication, monitoring and remediation and networks. The new risk-based approach also aims to improve the scalability of the standard. ISQM 2 aims to strengthen and clarify various aspects of engagement quality reviews, including the engagements to be subject to such reviews, the eligibility criteria for engagement quality reviewers and the performance and documentation of the reviews. The revisions to ISA 220 include strengthening aspects of quality management at the individual engagement level.

The project pages for ISQM 1, ISQM 2 and ISA 220 (Revised), containing more information about the project, can be found here.

Targeted Milestones

The IAASB targets to finalize the new and revised standards in March 2020. The Board will also consider the extent of the implementation activities necessary. (See box on Quality Management projects implementation support below).


Group Audits – Revision of ISA 600

This project addresses revisions to ISA 600 to strengthen the auditor’s approach to a group audit and clarify the role of ISA 600 in relation to other ISAs, such as ISQM 1, ISA 220 (Revised), ISA 315 (Revised) and ISA 330, The Auditor’s Responses to Assessed Risks.

As part of this project the IAASB issued a Staff Audit Practice Alert: Responsibilities of the Engagement Partner in Circumstances when the Engagement Partner is not Located Where the Majority of the Audit Work is Performed in August 2015 and a Project Update in October 2017.

The project page, containing more information about the project, can be found here.

Targeted Milestones

The IAASB commenced this project in 2014 but decided to focus on some of the IAASB’s other projects given that some of the foundational issues to be dealt with in the revisions to ISA 600 need to be first considered and addressed in other projects, such as ISQM 1, ISQM 2, ISA 220 (Revised), and ISA 315 (Revised). As these projects are nearing completion, the IAASB will intensify and progress its work on revising ISA 600 and will work towards the following milestones:

  • Exposure Draft of revised ISA 600 – Targeted December 2019
  • Final revised ISA 600 – Targeted March 2021


Extended External Reporting

The IAASB will continue to develop non-authoritative guidance in applying International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information, to EER and continue to provide thought leadership on assurance issues in relation to EER.

Phase 2 of the project is targeted to run from early 2019 until late 2020, subject to the availability and allocation of the necessary resources. This phase is due to cover issues including determining the scope of an EER assurance engagement, exercising professional skepticism and professional judgment, obtaining the competence necessary to perform the engagement, and communicating effectively in the assurance report.

The project page, containing more information about the project can be found here.

Targeted Milestones

Following the public consultation on the draft guidance developed during phase 1 and phase 2 in early and late 2019 respectively, the IAASB is expected to consider the responses received and update the guidance before seeking approval to publish it in final form in September 2020.


Audit Evidence

The scope of a project on Audit Evidence will need to be further considered by the IAASB, as there may be many relevant areas in the ISAs affected by a project on this topic. Topics likely to be considered for inclusion in this project include:

  • A revision of ISA 500, Audit Evidence;
  • Aspects of automated tools and techniques (including data analytics); and
  • Professional skepticism.

Further consideration may also be given to whether, and how, it should encompass the need for possible revisions to ISA 230, Audit Documentation (including the impact of further consideration of professional skepticism), ISA 520, Analytical Procedures, ISA 530, Audit Sampling, ISA 320, Materiality in Planning and Performing an Audit, and other changes that may be warranted given the advances in technology.

Targeted Milestones

Initial information gathering and research activities relating to scoping the project, including discussions with the US Auditing Standards Board about current developments in its project on this topic, will commence in the first half of 2019. The discussions with the IAASB on the appropriate scoping of the project will help determine what would be included in a project proposal. More significant standard-setting activities are likely to commence in 2020.


Audit of Less Complex Entities

The objective of this project is to address the perceived challenges and issues relating to an audit of a less complex entity using the ISAs, and explore possible actions for IAASB consideration. The IAASB will initially develop a Discussion Paper for public consultation, and the feedback from the Discussion Paper and related outreach activities will help develop recommendations for IAASB consideration about the way forward.

The project page, containing more information about the project, can be found here.

Targeted Milestones

The IAASB will publish a Discussion Paper in the second quarter of 2019 regarding perceived challenges and issues in relation to audits of less complex entities. A second Small- and Medium-sized Practices (SMP)/ SME Conference will be held in May 2019, in addition to other targeted outreach activities. The feedback from the Discussion Paper and outreach will help the IAASB determine the way forward for its work on audits of less complex entities.


Post-Implementation Review on Auditor Reporting Standards

The post-implementation review of the Auditor Reporting standards will commence in 2019. As part of the post- implementation review, we will monitor developments in auditor reporting around the world and will also focus on practical implementation issues and other issues that are causing the standards to not achieve their intended purpose. In addition to this, the post-implementation review will explore whether there are ways to improve the quality of the communication of key audit matters and other matters that could improve transparency about the audit that were not included in the new and revised Auditor Reporting Standards.

The project page, containing more information about this initiative can be found here.

Targeted Milestones

Depending on the findings of the post-implementation review, the IAASB will perform further work as necessary in 2020 and 2021.


ISA 540 (Revised) Implementation Support

As ISA 540 (Revised) is implemented globally, the IAASB will continue to undertake activities for the effective implementation of this standard.

Towards the end of 2021 the IAASB will also develop an initial outline of the planned post-implementation review, in particular the scope and purpose of the review, as well as the expected timing.

The project page, containing more information about the project, can be found here.


ISA 315 (Revised) Implementation Support

The IAASB will develop material to support awareness, understanding and effective implementation of ISA 315 (Revised). This material may include an ‘at a glance’ document, overview slide presentation, frequently asked questions and webinars. It may also include flow charts that show the overall risk assessment, the understanding of internal control and the understanding of the IT environment.


Quality Management projects (ISQM 1, ISQM 2, ISA 220 (Revised)) Implementation Support

The IAASB plans to develop material to support awareness, understanding and the effective implementation of the quality management standards. This material may include practical examples to demonstrate how the requirements of ISQM 1 may be implemented based on the nature and circumstances of the firm and its engagements. The IAASB is also exploring the development of an ‘at a glance’ document, frequently asked questions, a slide presentation, and webinars.


i ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures
ii ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
iii For more information about the Quality Management projects see the following project pages:

iv For more information about the Group Audits project see the project page: http://www.iaasb.org/projects/group-audits-isa-600
v For more information about the implementation of ISA 540 (Revised) see the project page: http://www.iaasb.org/projects/isa-540-revised- implementation-working-group
vi For more information about the project on ISA 315 (Revised) see the project page: http://www.iaasb.org/projects/isa-315-revised
vii For more information about the Auditor Reporting Post-Implementation Review see the project page: http://www.iaasb.org/projects/auditor- reporting-implementation-working-group
viii For more information about the EER project see the project page: http://www.iaasb.org/projects/emerging-forms-external-reporting-eer- assurance
ix For more information about the Data Analytics project see the project page: http://www.iaasb.org/projects/data-analytics. For more information about the Professional Skepticism project see the project page: http://www.iaasb.org/projects/professional-skepticism.
x For more information about the Audits of Less Complex Entities project see the project page: http://www.iaasb.org/projects/audits-less- complex-entities
xi For more information about the IAASB’s liaison with the IASB see the project page: http://www.iaasb.org/projects/iaasb-iasb-liaison
xii Proposed International Standard on Quality Management (ISQM) (previously International Standard on Quality Control (ISQC)) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements
xiii Proposed ISQM 2, Engagement Quality Reviews
xiv ISA 220 (Revised), Quality Management for an Audit of Financial Statements
xv ISA 600 (Revised), Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors)
xvi International Standard on Related Services (ISRS) 4400, Engagements to Perform Agreed-Upon Procedures Regarding Financial Information

Extended External Reporting (EER) Assurance

Publication date: 11 Jun 2019

adobe_pdf_file_icon_32x32 EER Consultation Paper

This memorandum provides background to this consultation and the IAASB’s EER Assurance project.

 
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