APB today issued an update of Practice Note (PN) 23 providing interim guidance for auditors on "Auditing Complex Financial Instruments." An exposure draft of the updated PN 23 was issued for consultation in October 2008.
The previous version of PN 23 was issued in April 2002 to provide guidance on auditing derivative financial instruments. Responses to the APB's consultation supported its view that it is helpful to widen the scope of PN 23 to cover other complex financial instruments, as well as derivatives, as many of the audit considerations are the same.
The APB has decided to issue this version of PN 23 as interim guidance because:
- Relevant accounting standards are under review and future changes may have implications for auditors; and
- The guidance in the updated PN 23 has been aligned with the APB's current International Standards on Auditing (ISAs) (UK and Ireland). However, for audits of entities with accounting periods ending on or after 15 December 2010 new ISAs (UK and Ireland) will be effective that reflect the 'Clarity ISAs' issued by the IAASB. One feature of the Clarity ISAs is that ISA 545 has been subsumed into a revised ISA 540, "Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures." Conforming changes will be needed to this Practice Note when the new ISA (UK and Ireland) 540 applies.