consultation papers, the International Audit and Assurance
Standards Board (IAASB) has officially finished its Clarity
Project. The final clarified ISAs, completed at the December IAASB
meeting, were approved by the Public Interest Oversight Board this
IAASB chair Arnold Schilder said the completion is a “great
compliment to all of those who have worked on that so hard”.
Association of Chartered Certified Accountants head of auditing
practice David York said “champagne corks are popping all around
the globe because the Clarity Project is finished”. Stakeholders
are generally enthusiastic about some solid improvements in the
standards, but the celebration is more from relief that the
enormous project is complete, he said.
“If you costed out all the professional time it would be
astonishingly large,” York added.
Several thousand people were involved in the project, from the
core IAASB members and technical advisors, to the stakeholders who
produced roughly 1,500 comment letters on the 36 new or clarified
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Schilder said the finished product is essentially a new set of
There are two major changes. The first is complete restructuring
and restyling, resulting in a new clear distinction between
mandatory requirements and guidance.
Secondly there is new content, including new considerations for
small entities, smaller practitioners and public sector
One significant new standard is the group audit standard ISA 600
(Revised) The Work of Related Auditors and Other Auditors in the
Audit of Group Financial Statements. The new ISA more clearly
defines the requirements for the group audit, the subsidiary audit
and how they must be related.
York said the revised ISA 600 is particularly welcome and that
the fraud at Italian dairy company Parmalat was an example of a
lack of communication in a group audit.
“There is no direct link between Parmalat and ISA 600, to a
large extent ISA 600 was codifying what people were doing anyway,”
he said. “But it certainly helps to have a standard that puts best
practice in front of everyone.”
An example of a new focus on smaller entities is found in ISA
550 (Revised and Redrafted) Related Parties. Schilder explained
that in the small entity environment related parties can be quite
significant, so the auditor must be aware of the risks and benefits
this can bring.
The combined changes mean the audit profession needs a lot of
new training. The IAASB has already begun working on ISA
implementation assistance, including producing video modules for a
number of standards.
The International Federation of Accountants is also advocating
that when one member body produces guidance and training, it is
used by others. The same applies for firms.
Before the clarified ISAs can be implemented, national
regulators must adopt the new standards. Some jurisdictions,
including the UK and Korea, have committed to this, but there are
still doubts hanging over key regions including the EC, which is
awaiting the outcome of two studies that will assist its final
Schilder is optimistic the commission will adopt the ISAs in the
There are also ongoing discussions with the US Public Company
Accounting Oversight Board. The two organisations have agreed
convergence in auditing standards is important, but this does not
necessarily mean entirely similar standards.
“It is very important they are not diverging on important or
material issues and we fully agreed on that,” Schilder said.
Legal adoption in Europe is a big issue for the UK, York said.
One important issue for the UK Auditing Practices Board (APB) will
be whether the EC introduces regulations about how the standards
are to be adopted.
“If they say ‘you are not allowed to add anything to the
standards’, it may prove a problem in the UK because the APB has
historically wanted to have a lot of gold plating, a lot of
pluses,” York explained.
Avoiding carve outs and gold plating is important worldwide,
“This really is a whole suite of related standards…. You have to
see it as a whole, it has been drafted and revised from the
perspective of an audit as a whole,” he said.
This whole includes the application material.
Long-term, York would like to see the IAASB revisit the ISAs. He
initially advocated a more fundamental approach to the Clarity
Project, but the timetable was too tight.
“There were a lot of compromises made,” York said.
“Realistically the compromises were made very well. There were a
lot of sensible people sitting around the table and what has come
out is eminently usable, but it is not something that I would say
would be intellectually the most satisfactory.”