View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
September 23, 2010

In for the long haul

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.”

 

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to International Accounting Bulletin