Audit and Assurance news

A new publication from Accountancy Europe builds on the factsheet published last year and offers constructive recommendations based on the discussions with their members’ audit experts as well as external stakeholders involved in developing AQI initiatives in their respective jurisdictions. The paper highlights the key considerations for developing and using AQIs to support potential debates that could take place among the European Commission, the Committee of European Audit Oversight Bodies (CEAOB), national policymakers and regulators, auditors, as well as other parties. Accountancy Europe want to keep contributing to this debate; since the evolution of AQI reporting as a means to support audit quality requires continuous discussion with all relevant stakeholders. To support this objective and build on the factsheet (May 2022), this publication: defines key concepts related to audit quality presents considerations for developing Audit Quality Indicators (AQIs) explains what can and cannot be achieved by AQI reporting AQIs are not ends themselves but are one important means to increase the audit work’s transparency and to support consistent, high-quality audits. A blend of AQIs can help focus on the areas where improvement is needed. Key factors to develop and use audit quality indicators - Accountancy Europe

This video provides information on the revised ISA (Ireland) 315 Identifying and Assessing the Risks of Material Misstatement. ISA 315 is effective for financial periods beginning on or after 15 December 2021. IAASA video presentation on the revised ISA (Ireland) 315 – IAASA

IAASA has published its key messages for auditors in the area of related parties, available here . IAASA’s YouTube channel also now includes a video that shares questions asked by IAASA’s audit inspectors during 2022 in the area of related parties, available here.

The Financial Reporting Council (FRC) has announced its areas of supervisory focus for 2023/24, including priority sectors, for corporate reporting reviews and audit quality inspection The FRC’s Supervision Division will supplement its routine reviews of corporate reporting and audits with a number of thematic reviews.  These reviews will identify scope for improvement, as well as examples of better practice. The FRC will conduct the work over the course of the year, as resources allow, and will release the findings in a range of forms.   The FRC’s Audit Quality Review team will pay particular attention in its audit quality inspections to areas including going concern, fraud risks, climate-related risks, and risk identification and assessment.   In selecting corporate reports and audits for review, the FRC will prioritise sectors that are under particular pressure. Thematic reviews of corporate reporting   The Corporate Reporting Review team will conduct four thematic reviews during the next year: Insurance contracts (IFRS 17): The new standard on insurance contracts will have a significant effect on corporate reporting in the insurance sector. The FRC will review a selection of insurers’ 2023 interim accounts to identify compliance with IFRS 17 and examples of good disclosures. Large private companies: The proposed change to the definition of a Public Interest Entity will bring an enhanced regulatory focus on the largest private companies. The Government’s intended threshold is entities that exceed £750 million annual revenue and 750 employees. The FRC will review a selection of private companies’ annual reports to identify whether and where there are areas of poor compliance with reporting requirements with a view to informing our monitoring activities going ahead.  Task Force on Climate-related financial Disclosures (TCFD) – metrics and targets: climate-related metrics and targets, including companies’ “net zero” plans, are seen as increasingly important by investors, and the TCFD’s recommendations in this area were updated in 2021. Following the FRC’s thematic review of TCFD disclosures in 2022 (carried out in collaboration with the FCA) which highlighted room for improvement in many companies’ metrics and targets disclosures, the FRC will undertake a targeted follow-up in 2023, with a focus on the metrics and targets disclosures of companies from four relevant sectors. The FRC will also consider how adequately these companies’ net zero commitments have been addressed in their financial statements. Fair value measurement (IFRS 13):  The FRC’s review will focus on companies in the non-financial sector, and will provide an overview of the disclosure requirements of the standard, highlighting examples of better disclosure and common pitfalls. Thematic reviews of audit When identifying audit thematic reviews, the FRS has considered carefully how topics align with and complement the monitoring of the imminently effective new quality standard for firms, ISQM 1. The new standard is a more holistic and integrated standard, covering all elements of firms’ systems of quality management for their audit practice and so the thematic work more naturally overlaps with this. The FRC has selected the following topics to be covered in this inspection cycle: Sampling Hot reviews Network resources and service providers Root cause analysis  Areas of focus for audit quality inspections   The FRC’s programme of audit quality inspections will pay particular attention to the auditor’s work in the following areas: Going concern Fraud risks Climate-related risks, including the linkage between the audited financial statements and climate-related disclosures elsewhere in the Annual Report    The application of the revised Auditing Standard on risk identification and assessment (ISA (UK) 315). Other areas, including prior year areas of focus, will continue to be selected for review on individual audits applying a risk-based approach (with any financial reporting concerns identified, for example, potentially material errors in the cash flow statement, taken into account). Priority sectors In selecting both corporate reports and audits for review, the FRC will give priority to the following sectors: Travel, Hospitality and Leisure  Retail and Personal Goods Construction and Materials Industrial Transportation   These sectors are considered by the FRC to be higher risk, for corporate reporting and audit, by virtue of economic or other pressures.    Given the difficult economic conditions that are currently being experienced, we recognise that many companies, in many different sectors, are currently under particular commercial and financial pressure. We will therefore be especially careful over the coming year in monitoring where these pressures are being felt most acutely, and tailor our selection of company reports for review and audits for inspection accordingly.    

The International Federation of Accountants (IFAC) has released a new resource, The Risk Identification and Assessment Process: Tips on Implementing ISA 315 (Revised 2019). The tool helps auditors implement the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Auditing (ISA) 315 (Revised 2019), Identifying and Assessing the Risks of Material Misstatement, which is effective for audits of financial statements for periods beginning on or after December 15, 2021. The implementation tool provides an overview of core concepts and explains new and previously existing requirements. It also includes examples and emphasizes the scalability of the standard with a focus on less complex entities. The tool does not replace the need to read ISA 315 (Revised 2019), including its application and other explanatory material.  The resource is based on Chartered Professional Accountants of Canada’s (CPA Canada) Implementation Tool for Auditors and follows the release earlier this year of IFAC’s Auditing Accounting Estimates: ISA 540 (Revised) Implementation Tool. These tools support efforts to improve audit quality globally and, more broadly, international standards’ adoption and implementation. Additional guidance and resources are available on the dedicated Supporting International Standards section of the IFAC Knowledge Gateway.

The International Auditing and Assurance Standards Board (IAASB) has published a new fact sheet on the interactions between International Standard on Audit (ISA) 220 (Revised), which addresses quality management at the engagement level, and ISA 600 on group audits. The fact sheet highlights aspects of a group audit that may be affected by ISA 220 (Revised) and International Standard on Quality Management 1 addressing quality management at the firm level. This includes the revised definition of engagement team and leadership and direction, supervision, and review responsibilities. The factsheet will be particularly useful for group audits in which component auditors are involved.