IAASB announces proposed ISA 315 changes
IAASB has recently released their largely supported consultation proposals on ISA 315
There has been undeniable controversy surrounding the auditing process across the accountancy industry over the past several months. The public, the government, and the accountancy industry itself, have been arguing that changes need to be made for increased transparency and efficiency.
The International Auditing and Assurance Standards Board (IAASB) recently released a consultation they had on the proposed International Standard on Auditing (ISA) 315.
Katharine Bagshaw, ICAEW manager of auditing standards, has said: “ISA 315 is a cornerstone standard and changes to it will affect all other standards, too. Our main reservations are about the complexity and scalability of the proposals. Without further work to the standard itself, and implementation guidance, there’s a huge risk that the proposals will be interpreted inconsistently across the board. That is not in the public interest.”
ISA 315 is an international auditing standard on risk assessments; it has previously remained unchanged since 2003. As such, the revisions that are now being applied by IAASB offer an interesting source of discussion in the accounting world.
In a letter addressed to IAASB, Stephen Haddrill – the chief executive of the Financial Reporting Council (FRC) – outlined that “overall, [FRC is] strongly supportive of the aims of the IAASB in enhancing and providing for a more robust risk assessment process that will support the auditor efforts in achieving high quality audits.”
The revision IAASB has put forward intends to address a number of problems. For example, the definition of ‘significant risk’, “and a lack of clarity about the nature, extent, and value of work that has to be performed on internal controls,” ICAEW’s report stated.
These are changes that both the FRC and ICAEW support. However, ICAEW has outlined that they “[do] not believe that [the] proposals, as they stand, are scalable for the audit of smaller and less complex companies.” The proposals will need “much more work” if they are to have any long-term effect in the improvement of both behaviour and risk assessments.
“If the IAASB wants to avoid the slow abandonment of ISAs for SMEs at a national level, it will need to do more to make this standard genuinely scalable for smaller entities,” Bagshaw added. “The belief that standard-setters don’t need to concern themselves with smaller audits is wrong and short-sighted.”
IAASB has cited the need to modernise ISA 315 in order to meet UK businesses constantly evolving needs, such as information technology, and the usage of automated tools by auditors.
However, according to Bagshaw, “the proposals are, unfortunately, cumbersome. The level of over-engineering will inevitably create confusion and inconsistencies.
“We are particularly concerned that the risk assessment process will be exceptionally difficult to navigate without the relevant flowchart, regardless of the size of the audit and that of itself demonstrates the need to revisit the text as a whole. More work is needed to render the proposals more concisely.”