The International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), has issued the first four final International Standards on Auditing (ISAs) redrafted as part of its comprehensive program to enhance the clarity of its standards. It has also approved amendments to the Preface to International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services, which establishes the conventions to be used by the IAASB in drafting future ISAs and the obligations of auditors who follow those standards. A report developed by the IAASB staff on the status of the IAASB's clarity project was also released summarizing these and other developments. New ISAsThe IAASB has issued the following four redrafted standards:

• ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements;
• ISA 300, Planning an Audit of Financial Statements;
• ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment; and
• ISA 330, The Auditor's Responses to Assessed Risks.

The four redrafted ISAs and the amended Preface were exposed for public comment in October 2005. The IAASB refined its clarity drafting conventions based on the comments received to the exposure drafts and after extensive consultation with interested parties, such as the IAASB's Consultative Advisory Group and national auditing standard setters. In developing these final standards, the IAASB improved the consistency with which the conventions were applied to the ISAs and considered the need for them to be applicable to audits of entities of all sizes.

"The release of these final ISAs in the new drafting style represents an important milestone for the IAASB as it works to improve the clarity of its international standards," states John Kellas, IAASB Chairman. "The IAASB is satisfied that these four redrafted ISAs are clearer and the expectation of consistent application by professional accountants worldwide has been strengthened. We are now proceeding with the application of the clarity conventions to all the ISAs."

The four redrafted ISAs have a provisional effective date for audits of financial statements for periods beginning on or after December 15, 2008. While the final common effective date for all redrafted ISAs will be determined as the IAASB's agenda progresses, it will not be earlier than December 15, 2008. The amended Preface contains important statements about the authority of the IAASB's standards.

In order to embed these within the ISAs themselves, the IAASB intends to revise ISA 200, Objective and General Principles Governing an Audit of Financial Statements to incorporate relevant provisions of the amended Preface. When ISA 200 is revised and exposed for public comment in 2007, respondents will be invited to comment on the material derived from the amended Preface in that new context. Clarity Project Update Progress that the IAASB has made so far and the direction it plans to take as it continues to redraft standards is outlined in the report Status of the IAASB's Work to Improve the Clarity of Its Standards. This staff report describes the main changes to the IAASB's standards arising from the application of its clarity drafting conventions and explains the IAASB's approach to implementing the conventions to all ISAs. How to Access The four ISAs and the Preface may be downloaded free-of-charge from the IFAC online bookstore at https://www.ifac.org/store. They will also be included in the 2007 Handbook of International Auditing, Assurance, and Ethics Pronouncements. The status report on the clarity project may be downloaded from the IAASB's website at https://www.iaasb.org.

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 worldwide 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 155 members and associates in 118 countries, 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.

At its most recent meeting in London in December, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), approved new proposals to enhance the written representations that auditors request from management, those charged with governance and others, as well as five new exposure drafts written in accordance with its new clarity drafting conventions.

Written Representations

The proposals, which are incorporated in proposed International Standard on Auditing (ISA) 580 (Revised and Redrafted), Written Representations, provide for general written representations regarding the financial statements, including internal control, and the completeness of information made available to the auditor, and for written representations about specific assertions in the financial statements. "The aim of this project was to improve the quality and appropriateness of written representations sought by the auditor and, in particular, to deal with concerns about whether auditors may over-rely on representations at the expense of other evidence," explains John Kellas, IAASB Chairman.

New Clarity Exposure Drafts

As part of its comprehensive program to enhance the clarity of international standards, the IAASB has also issued the following exposure drafts of proposed ISAs:

• ISA 230 (Redrafted), Audit Documentation;
• ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures;
• ISA 560 (Redrafted), Subsequent Events;
• ISA 610 (Redrafted), The Auditor's Consideration of the Internal Audit Function; and
• ISA 720 (Redrafted), The Auditor's Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements.

Proposed ISA 540 (Revised and Redrafted) is a combination of ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurements and Disclosures) and ISA 545, Auditing Fair Value Measurements and Disclosures. The IAASB approved ISA 540 (Revised) in September 2006 as a basis for applying the clarity drafting conventions. As part of the redrafting of ISA 540 (Revised), the IAASB decided that the similarities between estimates and fair value information could be emphasized, and redundancy eliminated, by combining ISA 540 (Revised) and ISA 545 within the proposed revised and redrafted ISA 540.

"The proposed ISA 540 (Revised and Redrafted) will reinforce best practice and cause the auditor to give appropriate attention to areas of accounting judgment, such as assumptions, and to possible bias. The other proposed redrafted standards contain clear requirements and easy to understand application guidance," notes Mr. Kellas.

The exposure drafts form part of the IAASB's ambitious 18-month program to redraft existing standards and to develop new and revised standards following the new drafting conventions, which were developed after extensive consultation with interested parties, such as the IAASB's Consultative Advisory Group and national auditing standard setters, and public consultation. Key elements of the new drafting conventions include: basing each standard on the objective of the auditor with respect to the subject matter of the standard; separating the requirements that the auditor is required to follow from guidance on their application; eliminating the present tense to describe actions by the auditor, which raised ambiguity about whether such actions were required; and other structural and drafting improvements to enhance the overall readability and understandability of the standards. Standards redrafted in this way are described as "redrafted." If further revision has been undertaken, a standard is described as "revised and redrafted."

How to Comment

Comments on the exposure drafts of proposed redrafted ISAs 230, 560, 610 and 720 are requested by March 31, 2007. Comments on the exposure drafts of proposed ISAs 540 (Revised and Redrafted) and 580 (Revised and Redrafted) are requested by April 30, 2007. The exposure drafts may be viewed by going to https://www.ifac.org/EDs. Comments may be submitted by email to EDComments@ifac.org. They can also be faxed to the attention of the Executive Director, Professional Standards at +1 (212) 286-9570 or mailed to IFAC, 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 of IFAC's website.

About the IAASB and IFAC The objective of the IAASB, an independent standard-setting board within IFAC, 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 the criteria for its due process and working procedures.

IFAC is the worldwide 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 155 members and associates in 118 countries, 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.

The objective of this paper is to set out the policy of the IAASB on the question: What modifications may a national standard setter that adopts the International Standards promulgated by the IAASB as its national standards make to the International Standards while still asserting that the resulting national standards conform to the International Standards? 

PROGRAM 

• The current reporting model
• Issues of technology – XBRL
• Risk involved
• Audit and assurance issues
• Scenarios for the use of interactive data
• The impact of the future reporting model on the assurance standards
• Proposals for assurance framework for electronic business reporting
• Call to action

As part of its comprehensive program to enhance the clarity of international standards, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), has issued three exposure drafts of proposed International Standards on Auditing (ISAs) that follow its new clarity drafting conventions. These exposure drafts form part of the IAASB's ambitious 18-month program to redraft existing standards and to develop new and revised standards following the new drafting conventions. The IAASB developed the new drafting conventions after extensive consultation with interested parties, including its Consultative Advisory Group and national auditing standards setters, on how to enhance the clarity of its pronouncements.

Key elements of the new drafting conventions include: basing the standards on objectives, as opposed to procedural considerations; using the word "shall" to identify requirements that the professional accountant is expected to follow in the vast majority of engagements; eliminating the present tense to describe actions by the professional accountant; and structural improvements to enhance the overall readability and understandability of the standards.

The following three proposed standards have been redrafted following the new drafting conventions:

• ISA 320 (Revised and Redrafted), Materiality in Planning and Performing an Audit;
• ISA 450 (Redrafted), Evaluation of Misstatements Identified during the Audit; and
• ISA 260 (Revised and Redrafted), Communication with Those Charged with Governance.

"The concept of materiality, the evaluation of misstatements identified during the audit, and high quality and relevant discussions between those charged with governance and the auditor are fundamental to an audit," explains IAASB Chairman John Kellas. "We believe that the proposed redrafted standards contain clear requirements and easy to understand application guidance in these very important areas."

How to Comment

Respondents are asked to comment on the application of the new drafting conventions only. Comments on all three exposure drafts are requested by February 15, 2007. The exposure drafts may be viewed by going to https://www.ifac.org/EDs. Comments may be submitted by email to EDComments@ifac.org. They can also be faxed to the attention of the Executive Director, Professional Standards at +1 (212) 286-9570 or mailed to IFAC, 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 of IFAC's website.

About the IAASB and IFAC

The objective of the IAASB, an independent standard-setting board within IFAC, 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 the criteria for its due process and working procedures. IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of approximately 160 professional accountancy bodies in 120 countries, 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.

The World Federation of Exchanges (WFE) formally endorsed the processes for establishing International Standards on Auditing (ISAs) at its General Assembly meeting in Sao Paolo, Brazil last week, viewing ISAs as key to the development of a globally uniform financial reporting system. ISAs are developed by the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board of the International Federation of Accountants (IFAC).

"WFE's endorsement of IFAC's structure of public oversight and the processes its public bodies have established for creating high quality global standards for audit work and assurance reviews is a critical advance for establishing the world's capital markets with constantly improving financial information," emphasizes WFE Secretary General Thomas Krantz. The WFE represents 57 securities and derivative markets that account for more than 97 percent of world stock market capitalization. Its endorsement provides important impetus for convergence to international standards, which is among IFAC's and the IAASB's most critical goals.

"We welcome this important endorsement of the ISA standard-setting process by the World Federation of Exchanges. It is a significant recognition of the quality of the ISAs and the important role they play in ensuring greater comparability of financial information for investors and facilitating cross border trade - both of which are critical to generating economic growth," states IFAC President Graham Ward.

The ISAs represent an integrated body of standards that provide direction on the actions and procedures the auditors need to perform and the judgments that need to be made to achieve the objective of an audit. ISAs are intended for use in all audits - publicly traded companies, private business of all sizes and government entities at all levels. They are increasingly being adopted worldwide; over 100 countries have adopted or incorporated ISAs into their national auditing standards or are using ISAs as a basis for preparing national auditing standards.

The IAASB, which meets in public, develops its standards following a rigorous and transparent due process. All proposed ISAs are exposed for public comment, and detailed project information is posted on its website (https://www.iaasb.org). The IAASB receives public interest input through public members that serve on the IAASB and from its Consultative Advisory Group* which is comprised of organizations, including the WFE, with an interest in the development of high quality international auditing standards. In addition, the Public Interest Oversight Board,** whose members are nominated by international regulators and organizations, provides public interest oversight of IAASB activities. All IAASB standards and guidance can be downloaded free-of-charge from the IFAC online bookstore: https://www.ifac.org/store.

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 the criteria for its due process and working procedures. IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of approximately 160 professional accountancy bodies in 120 countries, 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.