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Apr 11, 2008
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IAASB Issues Auditing Standard to Enhance Written Representations Requested from Management; Makes Further Progress on Clarity Standards
Following the consideration and approval of due process by the Public Interest Oversight Board (PIOB), the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), today released International Standard on Auditing (ISA) 580 (Revised and Redrafted), Written Representations, and ISA 560 (Redrafted), Subsequent Events.
ISA 580 (Revised and Redrafted) contains new requirements designed to improve the auditors' practice in relation to the written statements that management provides to auditors to confirm certain matters or to support other audit evidence (referred to as "written representations"). During the development of the standard, the IAASB considered matters such as the reasons for requesting written representations, the value of the evidence that they provide, and from whom they should be requested.
The standard requires the auditor to request management to provide written representations on two fundamental matters:
- That it has fulfilled its responsibility for the preparation and presentation of the financial statements; and
- That it has provided the auditor with all relevant information and that all transactions have been recorded and are reflected in the financial statements.
The auditor may deem it appropriate to request other written representations during the course of the audit. Other ISAs also include requirements for the auditor to request certain written representations in respect of specific matters. In addition, ISA 580 (Revised and Redrafted) includes requirements for appropriate action by the auditor when written representations are not provided by management or are considered to be unreliable.
The ISA makes clear that, although written representations provide necessary audit evidence, they do not provide sufficient appropriate audit evidence on their own about any matters. Furthermore, the fact that management has provided written representations does not affect the nature or extent of other audit evidence that the auditor obtains about the fulfillment of management's responsibilities, or about specific assertions.
"The aim of the new requirements is to enhance the quality and appropriateness of written representations sought by the auditor by a focus on what is really necessary and, in particular, to deal with concerns that auditors may over-rely on representations at the expense of other evidence," explains John Kellas, IAASB Chairman.
ISA 560 (Redrafted) forms part of the IAASB's ambitious 18-month program to redraft existing standards following the clarity drafting conventions. The standard, which deals with the auditor's responsibilities relating to subsequent events in an audit of financial statements, provides more clarity as to the requirements, but does not incorporate any substantive changes thereto. ISA 560 (Redrafted) will contribute to improving the consistency of its application by auditors around the world.
The complete set of clarified ISAs, including newly revised standards such as ISA 580 (Revised and Redrafted), is effective for audits of financial statements for periods beginning on or after December 15, 2009.
The ISAs can be downloaded free-of-charge from the IFAC online bookstore.
About the IAASB and IFAC
The objective of the IAASB is to serve the public interest by setting high quality auditing and assurance standards and by facilitating the convergence of international and national standards, thereby enhancing the quality and uniformity of practice throughout the world and strengthening public confidence in the global auditing and assurance profession. The Public Interest Oversight Board oversees the activities of the IAASB and, as one element of that oversight, establishes its due process and working procedures.
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 157 members and associates in 123 countries and jurisdictions, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international auditing and assurance standards through the IAASB, IFAC, through its independent standard-setting boards, sets international ethics, education, and public sector accounting standards. It also issues guidance to encourage high quality performance by professional accountants in business.
 Key elements of the clarity drafting conventions include: establishing an objective for the auditor with respect to the subject matter of each standard; clearly distinguishing requirements from guidance on their application; avoiding ambiguity through eliminating the present tense to describe actions by the auditor and using more imperative language where a requirement was intended; and other structural and drafting improvements to enhance the overall readability and understandability of the standards.