Special considerations - Audits of group financial statements APB
Introduction
ACCA welcomes the opportunity to comment on the Consultation Papers 'Proposed Addition to International Standard on Auditing ( UK and Ireland ) 600
Using the Work of Another Auditor' and
'Action to be Taken Regarding International Standard on Auditing 600 (Revised and Redrafted) Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) ' issued by the Auditing Practices Board (APB) of the Financial Reporting Council.
Our comments comprise answers to the specific questions raised in each of the two Consultation Papers.
Proposed Addition to ISA (UK and Ireland) 600
In this section of our response we address the issues identified for specific comment in the Consultation Paper 'Proposed Addition to International Standard on Auditing (UK and Ireland) 600 Using the Work of Another Auditor'.
Q1. Do you agree that the proposed addition to ISA (UK and Ireland) 600 is appropriate? If not, please give reasons.
ACCA agrees with the proposed addition as it is an appropriate reaction to the need to respond to anticipated changes in law.
Q2. Will there be any practical difficulties the APB should be made aware of resulting from requiring the proposed addition to ISA (UK and Ireland) 600 to be effective for audits of financial statements for accounting periods beginning on or after 6 April 2008?
We feel that the commencement date is unlikely to cause problems other than where there is a very short accounting period.
Action to be Taken Regarding ISA 600 (Revised and Redrafted)
In this section of our response we address the issues identified for specific comment in the Consultation Paper 'Action to be Taken Regarding International Standard on Auditing 600 (Revised and Redrafted) Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors)'.
Q1 As a general principle, should the APB promulgate those revised 'clarity' ISAs that would result in strengthened auditing standards in the UK and Ireland ahead of the date set out by the IAASB for international adoption, either as (a) new standards, or (b) in the form of non mandatory guidance? Please give reasons for your view.
ACCA is not in favour of the APB adopting and making mandatory the Clarity ISAs in advance of the international date. While to do so might theoretically yield some improvement in audit quality, we foresee increased costs and many practical difficulties in trying to operate a hybrid suite of standards. There are significant changes in some Clarity ISAs that are revised as well as redrafted. This means that a simple 'new for old' swap may not be appropriate for an individual ISA. In addition, the format of the Clarity ISAs is very different to that of ISAs (UK &I) and we anticipate that some training of auditors will be necessary to facilitate their use. This is best done as part of a 'big bang' adoption.
If some ISAs were to be issued as non-mandatory guidance, we question whether their status could be defined in a way that did not detract from extant ISAs.
Q2. With respect to consideration of ISA 600 (Revised and Redrafted), which of the three options do you believe is most appropriate and why?
(1) Adopt early.
(2) Not adopt until the full suite of "Clarity" ISAs is implemented.
(3) Convert to and issue as a Practice Note.
We believe that option (2) is the right approach. It would be inappropriate to move the UK and Ireland further away from the international mainstream.
Q3. With respect to consideration of ISA 600 (Revised and Redrafted), do you have any alternative proposals the APB should consider? If yes, please explain them.
The APB provides coverage on its website of IAASB material in relation to the Clarity project. We are very appreciative of this facility, especially the extensive analysis of exposure drafts which has informed our comments to the IAASB.
We suggest that the APB could draw attention to certain clarified ISAs that it regards as illustrating best practice guidance by providing a note of such matters on its website. This would facilitate access by auditors wishing to make improvements in methodology to incorporate thinking from the latest ISAs.
We note that the Audit Inspection Unit (AIU) has informed the APB that it may use ISA 600 as a source of 'best practice' guidance on group audits and have regard to it in conducting reviews and making recommendations on audit quality to firms. We suggest that the APB might usefully continue to liaise with the AIU to determine whether and to what extent it might be appropriate to publicise all such best practice material to benefit the quality of auditing in the UK and Ireland.