The audit of December 2010 accounts will need to be conducted using the new clarified ISAs. To do this, you will need to use new audit programmes which meet the requirements of these auditing standards. Before commencing on these audits it will be necessary for all partners/ principals and staff involved in audit work to be familiar with the clarified ISAs and to know what has changed between their old and new audit programmes.
It has been said that the challenge presented by the new clarified ISAs should not be underestimated. It will also be in the firm’s best interests to see this as an opportunity to improve the efficiency of their audits, with increased quality and better documentation.
With this in mind the ICAEW’s ISA implementation sub-group has issued a guide to help medium-sized and smaller firms implement the clarified ISAs. The guide is entitled ‘Right first time with the clarified ISAs’.
The Audit & Assurance Faculty has already issued guidance covering specific aspects of the clarified ISAs in its publications on the audit of groups, related parties and quality control. This new guide concentrates on what the sub-group considers to be the top ten clarified ISA implementation issues that will affect auditors.
The guide is divided into ten chapters as follows:
- The importance of achieving the objectives in a clarified ISA audit
- Agreeing the terms of audit engagements in a clarified ISA audit
- Understanding and documenting internal control in a smaller clarified ISA audit
- Management override in a clarified ISA audit
- Materiality in a clarified ISA audit
- Accounting estimates in a clarified ISA audit
- Documentation of significant professional judgements in a clarified ISA audit
- Communication with those charged with governance in a clarified ISA audit
- Written representations in a clarified ISA audit
- External confirmations in a clarified ISA audit
Whereas all of these chapters provide useful guidance, chapters 3 and 4 are likely to be the most useful. Chapter 6 will also be useful in providing guidance on a subject which takes on more importance in a clarified ISA audit.
A member of the sub-group has summarised the guide by saying it looks at the challenge presented by the overall objectives in the clarified ISAs (ISA 200) and how this interacts with the requirement for the auditor to agree the engagement terms with the client (ISA 210). It focuses on how the auditor deals with the problem of internal control in smaller audits (ISA 315) and provides practical guidance on issues such as management override (ISA 240), materiality (ISAs 320 and 450) and accounting estimates (ISA 540).
It deals with the requirement to document significant judgements (ISA 230), how judgements are ultimately reported to those charged with governance (ISAs 260 and 265), the need to obtain confirmations from external parties (ISA 505) and written representations from management (ISA 580).
The guide can be viewed by members of the Audit & Assurance faculty on their website.
Helping you get ready for clarified ISAs
The International Standards of Auditing (ISAs) have been completely re-written and your December 2010 year-ends will need to comply with the new clarified ISAs. Are you ready?
It's essential that you and your audit team are aware of the new standards and how to apply them. In addition, your firm's audit system will be updated to cater for these new standards, so it's important your team know how to use the updated version, in the context of the clarified ISAs.
There's a lot to sort out in a short space of time, but don't worry; SWATUK can provide a range of training and file reviews to help ensure you and your staff are ready for the change in good time.
For further details, email membership@the2020group.com.
