APB today issued a Consultation Paper on whether UK and Irish auditing standards should be updated for new international auditing standards that will be issued in early 2009.

The International Auditing and Assurance Standards Board (IAASB) is soon to complete an important project to update and reformat the International Standards on Auditing (ISAs). This, so called, ‘Clarity Project’ was undertaken with international regulatory support in order to improve the understandability of the ISAs and make them more compatible with regulatory frameworks, including the EC’s Statutory Audit Directive. In parallel with the Clarity Project, ISAs on important topics such as auditing groups, estimates (including fair values) and related party transactions are being improved to reflect the latest developments and thinking. The intention of the IAASB is that all the ISAs redrafted in the Clarity format should come into effect internationally for audits of financial statements for periods beginning on or after 15 December 2009.

The decision and timetable for an endorsement of the ‘Clarity ISAs’ within the EU has not yet been established. APB anticipates that such endorsement, if any, would be at a later date than the effective date established by the IAASB.

In 2004 APB made the strategic decision to base UK and Irish auditing standards on ISAs. One of the reasons for this was to benefit efficiently from future improvements in the ISAs.

The Consultation Paper asks whether the APB’s current ISAs (UK and Ireland) should be updated to reflect the improvements in the underlying international standards and, if so, whether this should be done by adopting the Clarity ISAs as soon as practicable or delayed until, if and when, they are endorsed by the EC.

The Consultation Paper includes the results of a Regulatory Impact Assessment that was undertaken by APB to evaluate the possible impact on audit costs of adopting the Clarity ISAs.

The APB would greatly appreciate hearing the views of investors (who have a particular interest in obtaining high quality audits), companies (who pay audit fees), accountancy bodies (who will need to provide training and implementation support) and audit firms (who will have to apply the new standards).

Richard Fleck, Chairman of the APB, commented:

“The new ISAs are designed to improve the clarity of the existing requirements and to strengthen standards in several key areas that are central to the effectiveness of the audit, especially in the current reporting environment. The APB believes that the new standards should be adopted domestically as soon as practicable so that UK and Irish auditing standards will continue to be seen as amongst the strongest internationally. We look forward to views on this approach and, in particular, on the optimal timing for the adoption of the new standards.

The basis of the consultation is that the new ISAs should apply to all audits. For this approach to work it is essential that the accountancy bodies and external providers provide training and implementation support, especially to the auditors of smaller entities. We have been liaising with the accountancy bodies and are committed to work with them throughout this process and assist where possible. For example, we plan to update Practice Note 26, Guidance on Smaller Entity Audit Documentation.”

The Consultation Paper can be downloaded, free of charge, from the Publications/ Exposure Drafts section of the APB’s website (www.frc.org.uk/apb).

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the Council. The Committee on Corporate Governance, whose members are drawn from the Council, assists it in its work on Corporate Governance.
2. The APB is committed to leading the development of auditing practice in the United Kingdom and the Republic of Ireland so as to:
   • establish high standards of auditing;
     
   • meet the developing needs of users of financial information; and
     
   • ensure public confidence in the auditing process.
3. The IAASB is aiming to complete its work on the Clarity Project by the end of 2008. The new ISAs are published in final form on the IFAC website when the Public Interest Oversight Board (an independent body responsible for approval of appointments and ongoing oversight of IFAC’s public interest activities) has confirmed that due process was followed in their development. Many of the clarified ISAs are already available and it is planned that all the finalised ISAs will have been published by IFAC by the end of March 2009.
4. For further information please contact Jon Grant, APB Executive Director, on 020 7492 2410.