ISA 700 (Redrafted), The Independent Auditor's Report on General Purpose Financial Statements
Proposed redrafted International Standard on Auditing issued for comment by the International Auditing and Assurance Standards Board of the International Federation of Accountants
Comments from ACCA
November 2007
Executive Summary
ACCA welcomes the opportunity to comment on the proposed International Standard on Auditing ISA 700 (Redrafted) The Independent Auditor's Report on General Purpose Financial Statements (proposed ISA 700), issued for comment by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants.
Our comments are restricted to the matters on which the IAASB has requested specific comments and changes proposed as a result of applying the Clarity project drafting conventions.
In the main, we support the decisions made in the preparation of proposed ISA 700. We refer, nevertheless, to our continuing concerns over the precision of drafting of the requirements and provide an illustration of where that could be improved.
We support the proposal to incorporate appropriate guidance from the related International Auditing Practice Statement , which would then be withdrawn.
Matters on which Specific Comments are Requested
In this section of our response we address the issues identified for specific comment in the Explanatory Memorandum forming part of the Exposure Draft.
Scope
We agree that there is a potential overlap between proposed ISA 450 (Revised and Redrafted) Evaluation of Misstatements Identified During the Audit and proposed ISA 700. We concur with the proposals for addressing this, as set out in the Explanatory Memorandum.
Financial Reporting Framework
We agree with the way that proposed ISA 700 addresses the evaluation by the auditor of the adequacy of the reference to, or description of, the applicable financial reporting framework on the basis of the current proposals of the International Accounting Standards Board (IASB). We concur with the decision to evaluate the need to re-expose such material in the event that the proposals of the IASB are significantly changed.
Withdrawal of Related Practice Statement
We agree with the withdrawal of International Auditing Practice Statement 1014 Reporting by Auditors on Compliance with International Financial Reporting Standards (IAPS 1014). Indeed, in our comments of January 2003 on proposed IAPS 1014, we noted that this was an appropriate intention.
We agree with the exclusion from proposed ISA 700 of the guidance identified in the Explanatory Memorandum as relating to rare circumstances (paragraph 7 of IAPS 1014).
Application of the Clarity Drafting Conventions
Objectives
The objectives are acceptable.
Definitions
In addition to the definitions provided, we believe that users would benefit from easier access to definitions of ‘fair presentation framework' and ‘compliance framework'. This might be done by expanding guidance in the area of paragraphs A3 to A5, or extending footnote 2 to provide a cross-reference.
Requirements
We do not find the requirements sections of proposed ISA 700 easy to understand. There are three main reasons for this:
- explanatory material is interspersed with the requirements,
- the wording of requirements makes no distinction between essential procedures and basic principles, and
- the requirements are not constructed in a simple fashion.
We have provided explanations of our concerns and commented at length on such matters in previous responses to proposed ISAs redrafted under the Clarity drafting conventions. As improvements in drafting have not been made and successive proposed ISAs continue to exhibit these faults we see no point in continuing to raise these general concerns.
In this instance, we offer one example where faulty wording has resulted in an ineffective requirement. Paragraph 37 states that ‘The auditor's report shall be signed.' This construction places the obligation on ‘the auditor's report' rather than on the auditor. As a result, the requirement is met by any signature, not just that of the auditor 1. It would be better to require specifically that: ‘The auditor shall sign the auditor's report.'
Other Matters
The Explanatory Memorandum forming part of the Exposure Draft invites comments on the following other matters:
- Special considerations in the audit of small entities
- Special considerations in the audit of public sector entities
- Developing nations
- Translations
- Undue costs
We have no significant comments on these matters.
1There is an argument that an auditor's report comes into being only when completed by the auditor through the act of signing. That argument could be used to argue that the requirement in paragraph 37 is not necessary, as much as to argue that the requirement need not specify whose signature.