The International Ethics Standards Board for Accountants (IESBA, the Ethics Board) today released its 2012 Annual Report, Connecting and Engaging with Our Global Stakeholders.

The report introduces Jörgen Holmquist, the first independent chair of the Ethics Board, and details the board’s ongoing commitment to developing high-quality ethics standards for the global accountancy profession. It emphasizes the board’s further commitment to promoting and facilitating the adoption and effective implementation of these standards around the world, thus supporting professional accountants in their commitment to act in the public interest within their diverse roles in business and practice.

The report summarizes the progress made on the IESBA's Work Plan, which in 2012 included finalizing three pronouncements—breach of a requirement of the Code of Ethics for Professional Accountants (the Code), conflicts of interest, and a revised definition of the term “engagement team.” The report also highlights the board’s efforts in exploring appropriate ethics standards for professional accountants in one of the most challenging projects the board has undertaken so far—responding to a suspected illegal act.

“The Annual Report is one of the ways through which the board demonstrates the transparency of its activities. This year’s report focuses on our activities in further building on the strong base of ethics standards contained in the revised Code released in 2009. Additionally, it elaborates on the renewed focus we’ve placed on stakeholder outreach,” said Mr. Holmquist. “As the first independent chair of the board, I see it as an important priority to increase the trust of stakeholders, particularly the regulatory community, in the board’s work, and extending and deepening the board’s engagement with them.”

The Annual Report also includes a report from Richard Fleck, outgoing chair of the IESBA Consultative Advisory Group (CAG), which outlines the work of the CAG in providing input to the IESBA.

To access and download the 2012 IESBA Annual Report, visit www.ethicsboard.org.

About the IESBA
The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ethicsboard.org for more information.

About IFAC
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 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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Introduction

The International Auditing and Assurance Standards Board (IAASB) has released proposals that could fundamentally transform the auditor's report, greatly enhancing its communicative value. The Exposure Draft (ED) proposes a new standard, International Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and a number of revisions to existing standards, including ISA 700, Forming an Opinion and Reporting on Financial Statements (see IAASB press release). While the proposals stand to significantly change the shape of auditor reporting for listed entities, the impact on unlisted entities is likely to be much smaller. Nevertheless, there are proposed requirements that apply to all audits. These are intended to help demonstrate the value of the audit and, furthermore, may improve service and promote engagement efficiency.

This article summarizes this impact and suggests how small- and medium-sized practices (SMPs) and small- and medium-sized entities (SMEs) can get involved to help ensure the best possible outcome.

Proposals

The proposed new and revised standards deal mainly with reporting considerations, which typically involve decisions by the auditor toward the end of the audit process. There are, however, aspects that may have implications for what the auditor does at or near the beginning of the audit, such as agreeing the terms of and planning the engagement, as well as communicating with those charged with governance. The most significant implications for the audits of unlisted entities are described below.

Content of the Auditor’s Report

The centerpiece of the proposals is proposed ISA 701. This completely new standard establishes requirements and guidance for the auditor’s determination and communication of key audit matters in the auditor’s report. Key audit matters, which are selected from matters communicated with those charged with governance, are required to be communicated in the auditor’s report for listed entities. Auditors of financial statements of unlisted entities may also be required, or may decide, to communicate key audit matters in the auditor’s report.

For example, law, regulation, or national auditing standards may require auditors of unlisted entities in a particular jurisdiction to communicate key audit matters. Moreover, the auditors of other unlisted entities may wish to use the new mechanism of key audit matters on a voluntary basis. Where key audit matters are communicated for audits of financial statements of unlisted entities (either voluntarily or when required by law or regulation) then such matters should be determined and communicated in the same manner as for listed entities (see paragraph 4 of proposed ISA 701 and paragraphs 30 and A30–A31 of proposed ISA 700 [Revised]).

ISA 700 has been revised to establish new required reporting elements, including a requirement for the auditor to include an explicit statement of auditor independence and disclose the source(s) of relevant ethics requirements, for all audits including those of unlisted entities. Similarly, ISA 570, Going Concern, has been amended to establish auditor reporting requirements applicable to all audits. The IAASB believes it is in the public interest for this to have universal application.

Agreeing the Terms of the Engagement

In light of the possibility of auditors of unlisted entities communicating key audit matters in the auditor’s report, or being requested by management or those charged with governance to do so, the IAASB has proposed limited amendments to other ISAs, including ISA 210, Agreeing the Terms of Audit Engagements. Specifically, if the auditor is not required to communicate key audit matters but intends to do so, a new requirement has been established for the auditor to include a statement in the audit engagement letter regarding such intent. This will provide an additional opportunity for the auditor to communicate with management and those charged with governance to ensure there’s a clear understanding as to the nature of the key audit matters to be disclosed.

Communicating with Those Charged with Governance

In light of proposed ISA 701, amendments are proposed to the required auditor communications with those charged with governance for all audits. The most significant proposed change to ISA 260 relates to the existing requirement for the auditor to communicate an overview of the planned scope and timing of the audit with those charged with governance. Proposed ISA 260 (Revised), Communication with Those Charged with Governance, expands this requirement to include communicating about the significant risks identified by the auditor (see paragraph 15 of proposed ISA 260 [Revised]).

Communication with those charged with governance about significant risks is likely already occurring in many audits, including those of SMEs, as ISAs demand a risk-based approach to the audit. But the IAASB believes audit quality could benefit from explicitly requiring such communication in every audit. The proposed requirement would provide those charged with governance with insight into those areas for which the auditor determined special audit consideration was necessary and, in so doing, help those charged with governance to fulfill their responsibility to oversee the financial reporting process. This will also provide the auditor with an opportunity to garner additional insights into significant risks from those charged with governance and, thereby, help ensure the audit program is appropriately focused.

The IAASB believes it is in the public interest to establish this requirement for audits of financial statements of all entities, not only for listed entities. Communicating with those charged with governance about significant risks is not expected to result in a significant burden on auditors who are not required to communicate key audit matters in the auditor’s report (e.g., auditors of unlisted entities), as proposed ISA 260 (Revised) remains flexible for such communication to be made orally. In addition, the IAASB proposes requiring the auditor to communicate, as part of communicating the significant findings from the audit, circumstances that require significant modification of the auditor’s planned approach to the audit, to align with the factors the auditor considers in determining key audit matters (see paragraph 16(c) of proposed ISA 260 [Revised]). This will provide further opportunity for dialogue with those charged with governance to help ensure all responsible parties have a full understanding of areas of significant auditor attention.

Feedback

The IAASB believes that the proposed ISAs can be implemented in a manner proportionate to the size and complexity of an entity and welcomes the views of both preparers and auditors of financial statements of unlisted entities, including SMEs, in this regard. The IAASB also invites respondents to comment on areas where additional guidance may be helpful to illustrate how the proposed ISAs can be implemented in a proportionate manner. The IFAC SMP Committee has been providing regular and robust input to the IAASB throughout the ED's development, starting with a response letter to the Invitation to Comment. Please tell us and the IAASB (click on Submit Comment) what you think about the ED and consider field testing ISA 701 on unlisted entities.

Revised Definition of the Professional Accountant

Project Status

Active

Objective

To develop an international definition of the term professional accountant.

Scope

To support IFAC's members and other professional accountancy organizations in the adoption and implementation of the International Education Standards by clarifying the definition of the professional accountant.  

PROJECT CONTACT

David McPeak

Welcome to IFAC’s International Auditing and Assurance Standards Board (IAASB) eNews.

In This Issue:

1. IAASB June Meeting
2. Auditor Reporting Exposure Draft
3. Auditor Reporting in the News
4. Post-Implementation Review of the Clarified ISAs
5. IAASB Chairman Speaks at CReCER 2013
6. IAASB 2012 Annual Report
7. Constructive Cooperation for International Standards
8. Other Relevant Standard-Setting Board and IFAC Initiatives
9. The IAASB is Hiring
10. Share IAASB eNews with Your Colleagues
11. World Congress of Accountants 2014 to be Held in Rome; Sponsorship Opportunities Available

1. IAASB June Meeting

The IAASB met June 24-28, 2013, in New York, USA. Please visit the IAASB Meeting Page for relevant agenda items. Meeting highlights and an audio podcast are also available. For more detailed information about IAASB projects, please refer to the project summaries under Active Projects.

2. Auditor Reporting Exposure Draft

At its June Meeting, the IAASB approved Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs). This exposure draft includes proposed new ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, proposed revised ISA 700, Forming an Opinion and Reporting on Financial Statements, and revisions to ISAs 260, 570, 705, and 706. Example reports illustrating various circumstances are included.

The Staff of the IAASB has provided additional, non-authoritative documents: an At A Glance; guidance to audit firms for field-testing proposed ISA 701; and two supplements to illustrate the changes made to ISA 700 and ISA 705 to assist those translating the exposure draft.

Comments are due by:  November 22, 2013.

3. Auditor Reporting in the News

The IAASB’s Auditor Reporting exposure draft has been highlighted in a number of news articles, including:

• The Accountant
• Bloomberg BNA
• CFO.com
• CorporateCounsel.net (podcast)
• Financial Executive

4. Post-Implementation Review of the Clarified ISAs
The IAASB recently released its final report on the Post-Implementation Review of the Clarified ISAs. This report summarizes feedback and the main themes that have emerged, and will be an important input to the IAASB’s future planning process, including its 2015–2019 strategy deliberations.

5. IAASB Chairman Speaks at CReCER 2013

In “The Evolving Role of Auditors and Auditor Reporting,” at CReCER in Cartagena, Colombia (August 2013), Prof. Arnold Schilder highlighted key aspects of the auditor reporting proposals.

6. IAASB 2012 Annual Report

The IAASB’s 2012 Annual Report, Responding to the Needs of an Interconnected World, highlights the board’s work in the public interest to enhance the quality and consistency of practice throughout the world, and thereby strengthen the public’s confidence in the global auditing and assurance profession. The report covers new and enhanced international standards issued by the IAASB during the year, the board’s progress on its current standard-setting projects and related initiatives, and its outreach activities to obtain input on its deliberations and to keep stakeholders informed of its activities. 

7. Constructive Cooperation for International Standards
In May, the IAASB joined IFAC and the International Accounting Standards Board (IASB) to gather more than 70 representatives from over 10 national organizations from former Soviet republics in Europe and Central Asia in London at a two-day conference. Hosted by the Association of Chartered Certified Accountants (ACCA), the event brought together organizations with responsibilities relating to the adoption or implementation of ISAs and IFRS.

The IAASB and IASB have been actively liaising on other initiatives of mutual interest. In March 2013, the IAASB submitted further comments concerning the auditability of recent IASB exposure drafts. The IAASB also welcomed IASB and IASB Staff representatives to its June 2013 Board meeting to discuss current developments, including in relation to going concern

8. Other Relevant Standard-Setting Board and IFAC Initiatives

Initiatives of IFAC committees and other independent standard-setting boards supported by IFAC may be of interest to those who follow the work of the IAASB, including the following:

• Kristian Koktvedgaard Appointed Chair of Ethics Board Consultative Advisory Group
• IPSASB Publishes Public Sector Conceptual Framework Exposure Draft
• IFAC Global Forum Focuses on Innovations to Support the Growth of Small Businesses and the Accountants That Serve Them
• IFAC Signs Strategic Agreement with The IIA
• Integrating ASEAN Capital Markets: Need for Strong Financial Reporting Environment and Building Investor Confidence

9. The IAASB is Hiring

The IAASB has open positions within its technical staff team. Interested individuals are invited to submit their resumes to: jobs@ifac.org. Further information about the positions is available on the IAASB home page.

10. Share IAASB eNews with Your Colleagues

The IAASB issues regular eNews updates to keep you apprised of the board's activities and recent publications. Please forward this eNews to any interested colleagues and let them know they can register and subscribe to this and other eNews bulletins on the IFAC website.

11. World Congress of Accountants 2014 to be Held in Rome; Sponsorship Opportunities Available

The next World Congress of Accountants (WCOA) will be hosted by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (CNDCEC) in Rome, Italy in 2014. Themed 2020 Vision: Learning from the Past, Building the Future, the 2014 WCOA will be held November 10-13 at the Auditorium Parco della Musica. More than 4,000 professionals from all over the world will convene at this IFAC event, which is held every four years. WCOA 2014 will look back to explore the evolution of the accountancy profession and forward to showcase the innovations that will shape the future of the profession.

The WCOA also provides a global platform for organizations and firms to share their projects and visions via various sponsorship opportunities. For more information, please contact info@wcoa2014rome.com or Dimarco@wcoa2014rome.com.

Good afternoon ladies and gentlemen, it is my pleasure to be with you again. I say ‘again’ as there are many familiar faces in the audience from the 2012 CReCER Conference in Nicaragua. For me, this in and of itself is a clear signal of the commitment of stakeholders in Latin America to engage in dialogue on international developments.

At last year’s conference, I noted a number of important challenges in financial reporting and auditing, and in the surrounding environment. For example, today’s financial reporting involves more complexity, more areas of judgment, and more qualitative disclosures; and users have higher expectations than ever before, with many saying “We want to hear more.” Perhaps most importantly, the global financial crisis has triggered questions concerning the quality of audits, their effectiveness, and the role of professional judgment and skepticism – which have given way to fundamental questions to the profession about relevance and trust.

So why change the auditor’s report now? What we learned from research is a positive message: the auditor’s opinion is valued, and users want to hear more from the auditor – more pertinent, and more tailored, information about the specific audit performed on an entity’s financial statements. There is symbolic value in the current report, but little communicative value – and users see the potential for the auditor to provide more value and more transparency. So, now is the time to lay the foundation for the auditor’s report of the future.

The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC), the global organization for the accountancy profession, today released International Good Practice Guidance, Project and Investment Appraisal for Sustainable Value Creation.

The guidance supports the accountancy profession’s facilitation of sustainable organizations, financial markets, and economies by providing guiding principles to manage the complexities of performing a robust project and investment appraisal. Greater rigor in the appraisal and decision process can be achieved by using the principles as a benchmark against which to assess an organization’s current practice.

“In today’s world, it is no longer sufficient for investment decisions to be appraised on financial criteria alone. While this guidance reinforces the importance of rigorous and robust project and investment appraisal, it does so  with a specific emphasis on facilitating long-term decision making and incorporating economic, environmental, and social considerations,” said Roger Tabor, chair of the PAIB Committee. “The revised guidance also sets out the critical role professional accountants in business play in advising on the application of financial principles and theory that are being tested during this current period of market instability.”

Accountants in business play a crucial role in helping organizations ensure a systematic and analytical approach to project and investment appraisal. In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders. Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g., labor practices), economic (e.g., in communities), and environmental (e.g., pollution). By introducing greater rigor, organizations can assess all important aspects of a project or investment.

“Traditionally, project and investment appraisal is taught and discussed in purely financial terms, which helps an organization focus on decisions that create the most economic value,” said Athalanallur Natarajan Raman, chair of the PAIB Committee Sustainability Advisory Group. “To create sustainable value, it is essential to also take into account every aspect of the project or investment and consider all facets of sustainability.”

About International Good Practice Guidance
International Good Practice Guidance (IGPG) issued by the PAIB Committee cover areas of international and strategic importance in which professional accountants in business are likely to engage. In issuing principles-based guidance, IFAC seeks to foster a common and consistent approach to those aspects of the work of professional accountants in business not covered by international standards. IFAC seeks to clearly identify principles that are generally accepted internationally and applicable to organizations of all sizes in commerce, industry, education, and the public and not-for-profit sectors. Previously issued IGPGs are available on the IFAC website, including Preface to IFAC’s International Good Practice Guidance.

About the PAIB Committee
The PAIB Committee serves IFAC member bodies and professional accountants worldwide who work in commerce, industry, financial services, education, and the public and the not-for-profit sectors. Its aim is to promote and contribute to the value of professional accountants in business by increasing awareness of the important roles professional accountants play, supporting member bodies in enhancing the competence of their members, and facilitating the communication and sharing of good practices and ideas.

About IFAC
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. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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Accountants in business play a crucial role in helping organizations ensure a systematic and analytical approach to project and investment appraisal. In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders. Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g., labor practices), economic (e.g., in communities), and environmental (e.g., pollution).