The International Auditing and Assurance Standards Board has released new proposals for how to audit complex financial instruments such as derivatives whose trading contributed to the financial crisis.

International Auditing Practice Statement 1000, “Special Considerations in Auditing Complex Financial Instruments,” highlights the practical considerations for auditors when dealing with complex financial instruments. The pronouncement gives particular emphasis to auditing considerations relating to valuation and disclosure issues for financial statement items measured at fair value.

“The global financial crisis highlighted the need for further guidance on this important and challenging area of financial reporting,” said IAASB chairman Arnold Schilder in a statement. “Through the proposed IAPS 1000, the IAASB seeks to raise awareness of issues being encountered in practice, in particular for fair value estimates and the valuation of assets in illiquid markets. IAPS 1000 provides useful guidance to auditors of entities of all sizes on a topic that will likely continue to prove challenging for both preparers of financial statements and auditors.”

Along with the proposed IAPS 1000, the IAASB is also exposing for comment proposed changes to the current “Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services,” which explains the authority of this and future International Auditing Practice Statements.

To access the exposure draft or submit a comment, visit the IAASB’s website at Comments on the exposure draft are requested by Feb. 11, 2011. The IAASB, which operates under the auspices of the International Federation of Accountants, plans to finalize the proposed guidance next year, but noted that auditors may wish to consider the material as they plan and perform their upcoming audit engagements.

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