IAASB Proposes New Requirements for the Audit of Group Financial Statements
The International Auditing and Assurance Standards Board (IAASB) recently approved and is issuing a re-exposure draft (ED) of the proposed International Standard on Auditing (ISA) 600 (Revised and Redrafted), the Audit of Group Financial Statements. The IAASB has modified the proposals and reissued the ED following earlier consultations, and is seeking reaction and comments on two specific matters:
- Previous proposals distinguished between the work that the group auditor needed to do, depending upon whether other auditors were related or not. While this may be a relevant factor, the strength of relationships varies, and the IAASB considers that the distinction is not, of itself, a sufficient basis for determining the group auditor’s work. The IAASB has therefore proposed eliminating the distinction in the proposed ISA; this has given rise too substantial changes to some of the proposed requirements. Respondents are asked whether they are in agreement with the proposal and the effect that it has on the procedures that the group auditor performs in relation to the work of other auditors.
- The proposed ISA is drafted on the basis that group auditor takes sole responsibility for the audit opinion on the group financial statements. This requires that the group auditor obtain sufficient appropriate audit evidence on which to base such an opinion. Because current group audit practices vary, the IAASB considered it necessary to be reasonably specific about the steps to be taken, and the work effort required, by the group auditor to acquire such evidence when other auditors are involved. Respondents are asked whether this approach is justified.
Respondents are also invited to comment on the application of the clarity drafting conventions. In developing the requirements and guidance, the IAASB considered regulatory and standard setting developments around the world, the interests of small entities, and the expectations of various stakeholders.
“Our proposals respond to public expectations for continuous improvement in auditing standards,” John Kellas, Chairman of the IAASB, explains in a statement issuing the re-exposure draft. “In particular, a number of regulatory bodies and studies supported the need for this project. The IAASB has shown itself to be prepared to tackle such major audit areas. The project has not been an easy one, but we are confident that the proposed standard will enhance current practice and promote consistency worldwide.”
Comments should be submitted by e-mail to EDComments@ifac.org or faxed to the IAASB Technical Director at 212-286-9570 by July 31, 2006. Comments may also be mailed to the IAASB Technical Director at 545 Fifth Avenue, 14th Floor, New York, NY, 10017, USA. All comments will be considered a matter of public record and will ultimately be posted on the International Federation of Accountants’ (IFAC) web site.