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November 1, 2009

Calls increase for ISA adoption in Europe following EC consultation

The close of an EC consultation on the adoption of ISAs in Europe has heralded increased statements in their favour.

The UK Auditing Practices Board (APB) issued 33 clarified ISAs as audit standards for the UK and Ireland on 13 October, becoming one of the first major jurisdictions to do so.

APB chairman Richard Fleck said the new ISAs are more rigorous and clearer than existing auditing standards in any country.

“The APB hopes that these standards will be mandated for use within the European Union in the near future,” Fleck added.

The Committee of European Securities Regulators (CESR) also supports the introduction of ISAs in Europe.

CESR has said there is growing international acceptance of ISAs and many potential benefits of harmonised auditing standards in the EU.

CESR supports a European endorsement process but says this should be used with precaution and changes made only in “highly rare circumstances”, otherwise it could erode the coherence of the standards and their international acceptability.

The Institute of Chartered Accountants in England and Wales (ICAEW) is also in favour of mandating ISAs in Europe. However, ICAEW executive director Robert Hodgkinson said the institute disagrees with an endorsement process that allows for “add-ons or carve-outs”.

Hodgkinson said if there is a “seed of doubt” regarding what exact standards have been used, it can have an adverse effect on the ability to take an audit report at face value.

The EC consultation suggested three options for the scope of an adoption: only the statutory audits of listed companies; the statutory audits of all limited companies except small companies; or, all statutory audits in the EU.

The ICAEW wants ISAs applied to all audits.

“Having two or more sets of standards would make it expensive for the audit market and also a bit confusing because inevitably one will be thought of as better than the other and certain audits will be seen as second rate,” Hodgkinson said.

Hodgkinson said infrastructure must be in place to ensure audits are not unnecessarily onerous.

“It is about making sure that the training, software, commercial packages and working paper packages are there for firms that can’t afford to develop their own,” he explained.

Hodgkinson said while the standards themselves are important, having the practical tools needed to deliver audits is just as vital. The ISAs come with this complete package.

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