This is an active initiative.
Objective(s) of project
The project objectives are to:
(i) Determine whether revisions (in the form of new or revised requirements, or additional application material) to the ISAs with respect to auditing disclosures are required and, if so, develop such revisions.
(ii) Consider how such revisions should be presented, for example within the relevant ISAs or in a separate ISA.
(iii) Determine whether other types of non-authoritative guidance, such as an International Auditing Practice Note (IAPN) or Staff Questions and Answers (Staff Q&A) publication should be developed and, if so, develop the content of such a publication.
The above objectives are not mutually exclusive, and deliberations on each will inform the overall project.
In March 2010 the IAASB agreed the establishment of a Working Group to explore and catalogue the issues and concerns around the audit of disclosures.
Task Force progress / Board discussions to date
At its September 2010 meeting, the IAASB discussed and agreed that it is critical to obtain further information and perspectives on audit practice and priorities regarding disclosures in a financial statement audit before proceeding to a project proposal. It was further agreed that the Working Group would develop a Discussion paper to:
- Validate issues identified by the Working Group and to seek feedback on those issues with the goal of assisting the Working Group in formulating a clear, targeted project plan; and
- Provide a platform for the IAASB to participate in future discussions and international debate about the future of financial reporting relative to disclosures.
The Working Group presented a proposed Discussion Paper (DP) at the December 2010 IAASB meeting, with the objective to further explore the audit implications of financial reporting disclosure requirements. The IAASB agreed the issuance of the DP, and in January 2011 the DP, entitled The Evolving Nature of Financial Reporting: Disclosure and Its Audit Implications, was released. The comment period on the DP was open through June 1, 2011.
At the September 2011 meeting a very short summary of the responses received to the DP was provided to the IAASB. The Working Group was of the view that a mechanism to feed back the key messages from the comments would be useful, and proposed the preparation of a Feedback Statement for the Board’s consideration.
The draft Feedback Statement was approved at the December 2011 IAASB meeting. The Feedback Statement, released in January 2012, provides an overview of the key messages heard on identified issues from the DP, and provides thoughts and recommendations on what can be done to address them.
At its June 2012 meeting, the IAASB further considered some specific issues identified in relation to auditing disclosures, including related work of others in this area, to assist with the preparation of a project proposal which was expected to be presented to the IAASB for their consideration at its September 2012 meeting.
The IAASB CAG discussed the project proposal at its September 2012 meeting and provided input on key considerations for the IAASB discussions.
At its September 2012 meeting (Agenda Item 6), the IAASB approved a project proposal to further consider the audit implications of financial statement disclosures, and to develop appropriate actions to address these issues.
At its December 2012 meeting, the IAASB discussed key issues identified by the Task Force on areas where enhancements to the ISAs may be appropriate in relation to auditing financial statement disclosures.
At its April 2013meeting, the IAASB discussed select issues and task force recommendations for enhancing the ISAs in relation to auditing financial statement disclosures. In particular, the IAASB provided input on where changes to the ISAs relating to the planning stage of the audit regarding auditing disclosures may be appropriate. The IAASB also discussed the existing assertions for presentation and disclosure, including considerations around their alignment with the qualitative characteristics of the underlying financial reporting frameworks.
At its September 2013 meeting, the IAASB discussed task force recommendations for enhancing various ISAs in relation to auditing financial statement disclosures. In particular, the IAASB provided input on where changes to the requirements and application and other explanatory material in ISAs addressing risk assessment, evaluating misstatements and forming an opinion on the financial statements may be appropriate for the purposes of auditing quantitative and qualitative disclosures. The IAASB also provided views on proposed changes to the assertions for presentation and disclosure.
At its December 2013 meeting, the IAASB discussed task force proposals to revise aspects of the ISAs in relation to auditing financial statement disclosures. The IAASB will consider revisions to the proposed changes to the ISAs for approval for exposure at its March 2014 meeting.
At its March 2014 meeting, the IAASB approved an Exposure Draft of proposed changes to the ISA’s for addressing disclosures in the audit of financial statements. The changes proposed, to ten ISAs, are mainly to the application material to explain more precisely what the requirements are intended to cover or provide examples of procedures that may be appropriate in the circumstances. The proposals are intended to focus auditors on disclosures, particularly earlier in the audit, to respond to concerns and issues raised by respondents to the Discussion Paper.
The IAASB also published a Preliminary Staff Publication (subject to update on finalization of the changes to the ISAs) highlighting matters that may be of relevance for auditors when auditing disclosures. It is intended to help the consistent, effective and proper application of the ISAs as they relate to disclosures.
At its December 2014 meeting, a summary of the responses relating to the significant issues identified by respondents to the Exposure Draft was presented to the IAASB. The IAASB discussed Task Force proposals to address the significant issues identified, including elevation of application material to requirements in ISA’s 330 and 700 (Revised). The IAASB agreed to proceed with finalizing the changes to the ISAs, with further consideration about changes relating to materiality and sufficient appropriate audit evidence being given.
At its January 2015 teleconference, the IAASB further discussed the proposed elevation of application material to the requirements in ISAs 330 and 700 (Revised). In addition, consideration was given to Task Force proposals of including in the requirement to understand the entity’s systems and processes in ISA 315 (Revised), an amendment to include consideration of information in disclosures that are obtained from systems and processes that are outside the general and subsidiary ledgers.
At its March 2015 meeting, the IAASB approved changes to ten International Standards on Auditing (ISAs) to address the audit implications of disclosures in the audit of financial statements. The changes clarify the concept of disclosures as an integral part of the financial statements and emphasize the need for auditor consideration of disclosures earlier in the audit process. Strengthened requirements and new guidance focuses on requiring the auditor to understand relevant aspects of the information system relating to information disclosed in the financial statements, identifying and assessing the risks of material misstatements in quantitative and qualitative disclosures, obtaining sufficient appropriate audit evidence relating to disclosures, and evaluating the overall presentation of the financial statements, including their relevance and understandability.
The changes will be published once the PIOB has approved the due process followed in their development, and will be effective for audits of financial statements for periods ending on or after December 15, 2016. An updated Staff Publication will also be published at the same time to highlight the importance and evolving nature of financial statement disclosures and articulate for auditors and others how the ISAs, including these changes, specifically address disclosures.