At its March 2021 meeting last week, the IAASB approved Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements, which will be published in April. This guidance marks a significant step forward in supporting the evolving field of assurance for non-financial reporting. EER encapsulates many different forms of reporting, including, but not limited to, sustainability or ESG (environmental, social and governance) reporting, integrated reporting, reporting on corporate social responsibility, greenhouse gas statements, and service performance reporting in the public sector.

The Guidance builds on our existing, well-tested assurance standard, International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. The Guidance responds to practitioner and user-identified challenges in the practical application of the standard to assurance engagements on EER.

Together with ISAE 3000 (Revised) and ISAE 3410, Assurance Engagements on Greenhouse Gas Statements, the Guidance forms a strong package aimed at enhancing confidence in and improving the reliability of assurance reports for their intended users. We believe this package of standards and Guidance is sufficiently robust to enable practitioners to respond to new reporting regimes, including those under consideration in the European Union and elsewhere. However, as gaps emerge, the IAASB remains ready to act.

Benefitting from our due process, the approval of the Guidance completes the work that we commenced in 2017 with the support of the World Business Council for Sustainable Development (WBCSD).

The Guidance Addresses Growing Demands for Extended External Reporting & Non-Financial Information Reporting

Non-financial information has become an important topic in reporting circles. As reporting evolves, auditors are increasingly asked to provide assurance on sustainability or ESG reporting. Where this type of reporting, and assurance thereon, have often been undertaken on a voluntary basis by entities, there is an increasing (and nowadays, urgent) focus on this being mandated by law or regulation. We at the IAASB have taken the view that we must rise to the challenge and assist, particularly as users of corporate reports are demanding a broader base of information to inform capital allocation decisions.

The Guidance responds to ten key stakeholder-identified challenges commonly encountered in applying ISAE 3000 (Revised), the umbrella standard for assurance engagements, in EER assurance engagements.

In response to strong requests from stakeholders, the Guidance also provides further explanation and examples to facilitate a better understanding of the distinction between limited assurance and reasonable assurance engagements as contemplated in ISAE 3000 (Revised).

Some may wonder why we chose the term “Extended External Reporting (EER)” rather than ESG or other forms of reporting now in common parlance. We chose EER to ensure broad-based impact of the Guidance. ISAE 3000 (Revised) applies to any assurance engagement other than an audit or review of historical financial information, including different forms of reporting of non-financial information as I have highlighted at the start.

EER information may be presented as a section(s) in an entity’s annual report or other mainstream periodic report, or in a regulatory filing, or it may be presented as a separate report(s) or statement(s) issued by an entity. Similarly, when an assurance engagement is requested, the EER information subject to assurance may be the whole report or may be one or more metric(s), section(s) or statement(s) within a report. ISAE 3000 (Revised) and the Guidance accommodate all these variations.

EER Engagements Must Include a Commitment to Quality and the Highest Ethical Standards

The Guidance supports the application of ISAE 3000 (Revised), which is the IAASB’s authoritative pronouncement. The Guidance does not introduce any further requirements beyond those in the standard or override or change any of the requirements or application material in the standard. Importantly, requirements related to quality and ethics are already deeply embedded in the standard.

ISAE 3000 (Revised) requires that:

• The practitioner is a member of a firm that is subject to International Standard on Quality Control 1, or other professional requirements or legal or regulatory requirements that are at least as demanding. This requirement will be updated and aligned with our new and revised quality management standards that were issued in December 2020.
• The practitioner and members of the engagement team are subject to the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants or other professional requirements or legal or regulatory requirements that are at least as demanding.
• The practitioner complies with the requirements of the standard addressing their own competence (including assurance skills and techniques) and the competence of others who perform the engagement.

Ensuring the Right Conditions Exist

The practitioner is only permitted to accept or continue an assurance engagement in accordance with ISAE 3000 (Revised) when the preconditions for an assurance engagement are present. Such preconditions relate to, among other matters, whether the engagement has a rational purpose taking into account, for example, the needs of users of the subject matter information, and the suitability of the criteria applied in the preparation of the information (e.g., a reporting framework or set of reporting standards that satisfies the requirements of the standard).

A significant part of the Guidance is devoted to supporting practitioners as they navigate the requirements of ISAE 3000 (Revised) relating to determining whether the preconditions are present.

The current global developments to establish a coherent set of sustainability reporting standards also will go a long way to address the preconditions for assurance engagements by providing suitable criteria.

Additional Support Material

We received considerable encouragement from respondents to our public consultation on the Guidance, which was accompanied by two supplements, to advance the development of certain elements of the supplements for publication; in particular, the supplement that provides longer worked examples relating to EER assurance engagements. Therefore, two additional items of non-authoritative support material will be published at the same time as the Guidance (note, these are not integral to the Guidance; the Guidance can be used without the need to refer to these materials, but they are available as additional resources, should practitioners wish to refer to them): (1) Credibility and Trust Model Relating to EER Reporting, and (2) Illustrative Examples of Selected Aspects of EER Assurance Engagements. The latter includes examples that cover a broad range of reporting frameworks.

What Lies Ahead

Together with ISAE 3000 (Revised) and ISAE 3410, the Guidance provides a solid foundation for consistent performance of quality assurance engagements relating to non-financial information reporting. At the same time, we know that this will not be our last action in this rapidly evolving area.

The IAASB is prepared to act to enhance our standards, frameworks and guidance to support progress. We will closely monitor relevant developments, engage with our stakeholders as part of our outreach program and seek a place at the table involving policy discussions that may impact our standards and our role as global auditing and assurance standard setter.

The Technology Working Group of the International Auditing and Assurance Standards Board (IAASB) today released non-authoritative support material to help auditors address the risk of overreliance on technology, whether it arises from using automated tools and techniques or from using information produced by an entity’s systems.  

The publication does not amend or override the International Standards on Auditing (ISAs), the texts of which alone are authoritative. Reading the publication is not a substitute for reading the ISAs.

The International Auditing and Assurance Standards Board (IAASB) is requesting public comments on its Exposure Draft addressing changes in some of its standards and framework resulting from the new and revised quality management standards. Comments are requested by May 24, 2021.

The Exposure Draft aligns the IAASB’s standards related to review, assurance and related services, as well as its framework, with the quality management standards through conforming amendments. This will ensure that the IAASB's international standards continue to be applied as intended. The proposed changes will also modify IAASB standards to reflect aspects of the new quality management approach and emphasize the importance of firm-level quality management to consistent quality engagements.

Please submit your comments via the IAASB website.

About the IAASB
The International Auditing and Assurance Standards Board develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org.

The International Auditing and Assurance Standards Board (IAASB) welcomes the release by the International Ethics Standards Board for Accountants (IESBA) of its Exposure Draft, Proposed Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code.

The IESBA Exposure Draft broadens the definition of a public interest entity (PIE) to include more categories of entities, given the level of public interest in their financial condition. It also replaces the term “listed entity” as a PIE category with “publicly traded entity” and redefines the category.

“The IAASB closely coordinated with IESBA on this project, recognizing that public interest entities play crucial roles in global markets. Convergence between audit and ethics standards on terms and concepts is in the public interest and is a leading priority,” said IAASB Chair Tom Seidenstein. “The IAASB has reflected on the possible implications for its Standards and urges all IAASB stakeholders to participate in the consultation because of the possible future implications for IAASB Standards.”

The aspects of the IESBA proposals that may have implications for the IAASB Standards, include:

• The introduction of an overarching objective for additional requirements to enhance confidence in the audit of financial statements of PIEs.
• The broadening of the definition of PIE to include additional categories of entities, and applying an approach whereby the categories are specified at a high level and expecting regulators, national standard setters or other relevant local bodies to refine these high-level categories so that the right entities in the local context are captured.
• Replacing the term “listed entity” with the term “publicly traded entity” and redefining that PIE category. In this regard, the Explanatory Memorandum explains the use of “listed entity” in IAASB Standards and the outcome of the IAASB’s preliminary deliberations in relation to the possible review of the use of “listed entity” and PIE in the IAASB Standards.
• Introducing a new requirement in the IESBA Code for firms to publicly disclose if an audit client was treated as a PIE. The Explanatory Memorandum provides information regarding the IAASB’s preliminary consideration of options in pursuing the possibility of transparency through the auditor’s report.

To enhance understanding of the Exposure Draft and encourage participation in the public consultation, the IESBA will publish additional guidance materials in February and host two webinars in March.

The IAASB encourages all stakeholders to participate in the public consultation, especially Question 15, which will help the IAASB conduct a preliminary assessment of relevant aspects of the proposal, by May 3, 2021 via the IESBA website.

About the IAASB
The International Auditing and Assurance Standards Board develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org.

The IAASB is looking for highly qualified volunteers to serve on the International Auditing and Assurance Standards Board (IAASB) for an initial term of up to 3 years, commencing January 1, 2022.

The IAASB is an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing, quality control, review, other assurance, and related services.

The nominations process, with public interest oversight, aims to select the most suitable candidates for the available positions. Transition to a multi-stakeholder model in line with the Monitoring Group reforms[1] will be taken into consideration during the selection process.

All stakeholders, including the general public, are invited to apply or nominate candidates. The Nominating Committee is interested in candidates from a wide range of relevant backgrounds, including:

• users of audited financial statements or assurance reports, including institutional investors and analysts, audit committee members, and individuals from the corporate governance community;
• nominees from regulatory and audit inspection or oversight bodies;
• preparers of financial reports;
• academics;
• national standard setters;
• those working in the government sector; and
• those who have expertise in technology as it relates to the audit and accountancy profession.

Candidates should ideally have experience with auditing and/or assurance issues and sufficient knowledge of the subject matters considered by the IAASB to be able to contribute effectively to the board’s work. English proficiency (both written and oral) is essential.

Nominations of highly qualified candidates from all regions are encouraged, with a particular emphasis on nominations from the Africa–Middle East and Latin America–Caribbean regions. Nominations of female candidates are also strongly encouraged.

Financial support to cover travel costs for attending board meetings is available for qualifying individuals and public members who do not have a nominating organization.

For more information, including details on number of open positions and positions where renewal of existing members is possible, and to learn how to submit an application, please see the Call for Nominations for IAASB in 2022, also available in Arabic, French and Spanish. The deadline for submitting applications is February 15, 2021.

About the IAASB
The International Auditing and Assurance Standards Board develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC).

During its December 2020 meeting, the IAASB held its first public discussions on the draft of a separate standard being developed for an audit of less complex entities and the official project proposal to complete and publish the draft standard for public consultation in 2021. The IAASB approved the project proposal and early draft.

Following these decisions, the IAASB today published a new communique detailing plans for the new standard, including current thinking on what the standard will look like, what entities it will apply to, and the development timeline.

For additional information on the IAASB’s efforts to balance the needs of all its stakeholders by addressing complexity, understandability, scalability and proportionality in the International Standards on Auditing, please see its November 2020 communique.

The International Auditing and Assurance Standards Board (IAASB) today released its three quality management standards. The standards promote a robust, proactive, scalable and effective approach to quality management and mark a significant evolution of the existing quality control standards.

“These standards will drive the audit profession to an enhanced approach to quality ‘management’ rather than ‘control’, which better enables the consistent performance of quality engagements, including audits,” according to IAASB Chair Tom Seidenstein. “The standards place greater responsibility on firm leadership for continuously improving the quality of their engagements and remediating when deficiencies are found. When effectively implemented, the standards should help ensure that a commitment to quality is at the heart of firm strategy and operations.”

The suite of standards includes:

• International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements;
• ISQM 2, Engagement Quality Reviews; and
• International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements. 

The standards become effective on December 15, 2022.

The IAASB has also developed Bases for Conclusions and factsheets to support the implementation of the new standards, which are available on the IAASB’s website. Additional support materials will be published in 2021.

About the IAASB
The International Auditing and Assurance Standards Board develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org.

ISA 220 (Revised) deals with the engagement partner and engagement team’s responsibilities for quality management for an audit of financial statements. The revised standard modernizes the approach to quality management and requires the engagement partner and engagement team to be proactive in managing and achieving quality.

ISA 220 (Revised) is effective for audits of financial statements for periods beginning on or after December 15, 2022.

ISQM 1 strengthens firms’ systems of quality management through a robust, proactive and effective approach to quality management. The standard encourages firms to design a system of quality management that is tailored to the nature and circumstances of the firm and engagements it performs. ISQM 1 applies to all firms that perform engagements under the IAASB’s international standards. ISQM 1 replaces ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements.

ISQM 2 deals with the appointment and eligibility of the engagement quality reviewer, and the engagement quality reviewer’s responsibilities relating to the performance and documentation of an engagement quality review. ISQM 2 applies to all engagements for which an engagement quality review is required to be performed in accordance with ISQM 1.