The International Accounting Standards Board (IAASB) initiated a campaign in 2004 to improve the readability of the ISAs.
This Clarity Project's overarching objective was to make the ISAs more understandable, which would, in turn, make it easier to apply the standards consistently and contribute to an overall improvement in audit quality on a global scale.
This was a crucial activity after several corporate disasters were brought to the public's attention and the declining confidence within the auditing profession.
As a result of the Clarity Project, each standard now has a crystal clear structure, complete with lucid objectives, definitions, and requirements, as well as application and other explanatory material that delves deeper into the ISAs' prerequisites to provide a better understanding of them.
Because of how the new standards are organised, it is much simpler to comprehend what is required and what is considered recommendations.
In addition, the ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements has been rewritten, and the revised guidance on quality control procedures went into effect at the same time as the clarified ISAs did.
The Clarity Project had an effect that helped immensely to the improvement and standardisation of audit quality on a global scale. This was one of the many positive outcomes of the project. The IAASB decided to get started on the project to help promote international convergence and assist global audit firms by harmonising auditing standards.
In a nutshell, the following changes were made to the ISAs and ISQC as a result of the Clarity Project:
19 ISAs and ISQC 1 have been redrafted to apply the new Clarity conventions and format (see discussion below) – these are referred to as ‘Redrafted ISAs.’
16 ISAs contain new and revised requirements, in addition to being redrafted to apply the new Clarity conventions and format – these are referred to as ‘Revised and Redrafted ISAs.’
Two new standards were issued:
one relating to communication,
ISA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management, and
another relating to the evaluation of misstatements,
ISA 450 Evaluation of Misstatements Identified during the Audit.
ISA 540 Audit of Accounting Estimates and ISA 545 Auditing Fair Value Measurements and Disclosures were combined in ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures.
What is meant by a ‘Redrafted’ standard?
Redrafted means that a standard has a new structure, in which information is presented in separate sections:
The Application and Other Explanatory Material
This paragraph provides information regarding the standard, including the ISA's purpose, scope, subject matter, and the information contained in this paragraph. In addition, it provides details regarding the roles and responsibilities of the auditor and those of other parties within the overall framework of the ISA.
Every ISA has a statement that outlines the auditor's goals for the specific audit field that the ISA is designed to cover.
As a result of the Clarity Project's addition of an element for enhanced understanding of the ISAs, appropriate phrases within the ISAs have now been defined.
Every ISA has requirements that have been articulated very specifically.
The phrase "the auditor shall..." has replaced older expressions such as "the auditor should..."
The industry applauded this development because it eliminates any ambiguity that may have existed previously.
Instead of using the word "should," which implies that the standard "may" demand something of the auditor in certain circumstances, the term "shall" emphasises that the standard expects the auditor to perform something specific.
Application and other explanatory material
Each ISA provides a clear explanation that is more specific about what the auditor is expected to perform to accomplish the aim of the ISA that is being discussed. Depending on the situation's specifics, the ISA may provide illustrative examples of appropriate procedures to follow in certain predicaments.
An ISA can include additional explanatory material to assist an auditor in better comprehending the ISA's overarching purpose and how it should be applied.
What is the impact of the ‘Revised and Redrafted’ ISAs?
"Revised and Redrafted" ISAs may comprise revised or newly introduced requirements and guidance to enhance audit practice in various domains.
These enhancements are also reflective of the most recent developments and ways of thinking in the areas of reporting and auditing. The following are some examples of areas that have been modified as a result of the process of redrafting:
Materiality in planning and performing an audit and its use in evaluating misstatements
Risk assessment and the gathering and evaluation of audit evidence
The audit of accounting estimates, including fair value disclosures, related party relationships and transactions, and an entity’s use of a third-party service organisation
Audit evidence about external confirmations and written representations
Using the work of others in the audit of group financial statements, including the work of component auditors and an auditor’s expert.
Communication with those charged with governance
Communicating deficiencies in internal control
Modifications to the auditor’s opinion and the use of Emphasis of Matter paragraphs
Audit and reporting considerations in the context of special engagements.
Rules and principles
The clarified International Standards on Auditing (ISAs) appear to take a more rules-based approach in their methodology, as the responsibilities and requirements of the auditor are more specifically outlined in the language of the standards.
When a requirement contains the word "shall," it denotes that it is obligatory and must be carried out despite other considerations, such as complexity, risk, size, or cost.
The argument in favour of this approach is that it will result in the uniform implementation of the ISAs and improved audit quality, as was previously noted.
However, on the other hand, several critics have argued that this prescriptive approach will result in problems because the auditor will have less room to exercise judgement.
For instance, it would be simple for a small entity with simple transaction cycles to be subjected to excessive auditing, as the auditor would be compelled to carry out tasks that would not be essential under the given conditions.
Equally, complicated issues may be subject to inadequate auditing if the requirements of an ISA have been satisfied and the auditor is not required to carry out additional work.
Our website's articles, templates, and material are solely for reference. Although we make every effort to keep the information up to date and accurate, we make no representations or warranties of any kind, either express or implied, regarding the website or the information, articles, templates, or related graphics that are contained on the website in terms of its completeness, accuracy, reliability, suitability, or availability. Any reliance on such information is therefore strictly at your own risk.
Keep in touch with us so that you can receive timely updates |
6. LinkedIn ✍ https://www.linkedin.com/company/74734209/admin/