The International Auditing and Assurance Standards Board has released for public comment proposed changes to the International Standards on Auditing to clarify the expectations of auditors when auditing financial statement disclosures.
The proposals include new guidance on considerations relevant to disclosures—from when the auditor plans the audit and assesses the risks of material misstatement, to when the auditor evaluates misstatements and forms an opinion on the financial statements.
“Addressing financial reporting disclosures has always been an integral part of an audit of financial statements in accordance with the ISAs,” said IAASB chairman Arnold Schilder in a statement. “Over the past decade, however, financial reporting disclosure requirements and practices have evolved, and disclosures now provide more decision-useful information that is often more narrative and subjective in nature. This gives rise to challenges from an auditing point of view, and the proposals enhance certain areas in the ISAs to support the proper application of the standards’ requirements.”
The IAASB’s latest proposals stem from feedback it received to a discussion paper, The Evolving Nature of Financial Reporting: Disclosure and Its Audit Implications, which it released in January 2011.
The board, which operates under the auspices of the International Federation of Accountants, has also benefited from liaison and outreach with stakeholders, including accounting standard setters, which are also actively exploring initiatives relating to disclosures. The IAASB acknowledges that many of the issues around disclosures cannot be solved by the IAASB alone, and that collaboration and cooperation between many interested stakeholders is necessary to further enhance the public’s confidence in financial statement disclosures.
“Public confidence in financial reporting can be damaged when there are poor quality disclosures, including excessive or immaterial disclosures that may obscure understanding of important matters. This can result, for example, when disclosures are prepared and audited relatively late in the financial reporting process,” said IAASB technical director James Gunn. “One of the key areas addressed in the board’s proposals, therefore, is additional guidance to help establish an appropriate focus by the auditor on disclosures and encourage earlier auditor attention on them during the audit process, including disclosures where the information is not derived from the accounting system.”
The IAASB is inviting all stakeholders to comment on the IAASB exposure draft of proposed changes to the ISAs to address disclosures in an audit. To access the exposure draft or submit a comment, visit the IAASB’s Web site at www.iaasb.org. Comments are requested by Sept. 11, 2014.