The International Auditing and Assurance Standards Board
does not attract anywhere near the political and public attention
focused on the International Accounting Standards Board, but the
audit rule-maker still has some topical issues on its plate. IAASB
chair Arnold Schilder talks Carolyn Canham through the
agenda.

Arnold Schilder IAASB

Less than two-thirds of the way
through his first three-year term, Arnold Schilder has already
committed to a second term as chair of the International Auditing
and Assurance Standards Board (IAASB). The announcement was
intended to provide stability as the board moves forward on a
number important projects, covering areas including compilation and
review engagements, greenhouse gas emissions, complex financial
instruments and audit quality.

In the 18 months since the IAASB
completed its Clarity Project, which resulted in a set of new and
improved ISAs, the board has been putting much of its resources
into supporting the adoption and implementation of the new
standards, but there has still been time to focus on new
projects.

Schilder hopes that exposure drafts
related to three of these projects will be approved for release at
the IAASB’s September board meeting.

The first is on compilation and
review engagements. An increasing number of countries around the
world are exempting SMEs from statutory audits. This means more
companies can choose whether to opt for an alternative form of
assurance.

The IAASB has a task force that is
working on revising the board’s existing compilation standard for
use by companies that do not want specific assurance – but their
financial statements properly compiled by an expert. The task force
is also looking at a standard for financial statement reviews,
which provide a lower level of assurance than audits.

“In our September meeting, we hope
to approve an exposure draft on compilations and hopefully review
engagements a quarter later,” Schilder says. “This very important
project takes a lot of energy, but for the SME world it is very
important.”

The second exposure draft is a
standard for providing assurance on greenhouse gas emissions
reporting – the IAASB’s first foray into the sustainability
arena.

“[This project is] very interesting
because it is a new area and we need to educate ourselves, we need
to learn,” Schilder says.

The third significant exposure
draft Schilder hopes the IAASB will pass at its September meeting
is for an audit practice statement on complex financial
instruments.

“We have an existing standard but
it was very much outdated and we have completely revised it,”
Schilder explains. “It is not a standard; it is a practice
statement, which is for educational purposes to teach auditors who
have to deal with complex financial instruments. It is obvious that
in a context of the global financial crisis it is a very important
practice statement. We have, for example, dialogues with the
Financial Stability Board and they are really very keen to see this
come out.”

Schilder is unsure whether all
three projects can be debated and agreed upon in a single week, but
notes there has already been a lot of preparatory work, discussions
and meetings. If all goes to plan, the three projects will result
in final standards and practice statements by the end of next
year.

Early
developments

A project in an earlier phase of development is tackling audit
quality.

“While it is in an early phase, I
am speaking a lot about the subject,” Schilder says. “The message
is, there is much auditors can do to achieve audit quality, but
that is not the full story. What is also very important are the
responses from users, from auditors’ reports and all that
information. So not just the short form report that you see in
published statements but also the long form reports, management
letters etcetera.”

This all links into the complicated
questions of just how much information about entities needs to be
disclosed, how it should be disclosed, and by whom.

“Many want to see more information
and either that comes from the auditor’s report or from
management,” Schilder explains.

“If it comes to disclosures, the
primary responsibility there lies with those charged with
governance – management and the board – because they are in the
best position to provide information about their company and it
would be a bit odd if their auditor would start doing that rather
than management themselves.

“The other related question is:
what can auditors do to stimulate that and maybe to comment upon
it? Certainly an area of interest with investors is what they
sometimes call the soft stuff, the judgements and assumptions and
the correlations.”

Schilder cites as an example
disclosures about the correlations between estimates.

“There is a lot of subjectivity
there and certainly the auditor will have a role in discussing that
with management and the board,” he explains.

“But you can also ask the question:
Would there be merit in the auditor commenting upon the most key
issues in that discussion? There are countries that are doing that.
For example, in France, they have a role first for management in
the notes, but then for the auditor to comment upon that.

“That is certainly part of the
discussion – who has to do what. The net end result has to be that
there is more [information] available certainly in the inner
circle, with the audit committee, etcetera, but the question also
needs to be asked: What can we do better for the outside world, the
investors, the shareholders and other stakeholders?”

There are many difficult questions
for the audit profession and the IAASB but Schilder is
optimistic

“I am encouraged by the shared drive for professionalism that I
am encountering around the world,” he says. “People really want to
do a good job and that is not only the auditors. The same goes for
governments or standard setters or member bodies and that is why I
like it so much. It is not so much about politics, it is about what
is in the best public interest.”