The Clarity ISA's - The dynamic world of auditing

The auditing profession and the standards it follows are extremely dynamic and constantly evolving to improve and strengthen initiatives in the public interest. One such example of this is the International Standards on Auditing (ISA) “Clarity project”.

Background of the project

On 31 Oct 2005 the International Auditing and Assurance Standards Board (IAASB) announced that it intended to improve the clarity of its ISAs by:

• Setting an overall objective for each ISA;
• Clarifying the obligations imposed on the auditor by the requirements of the ISAs, and by using the word “shall” instead of the current “should” to emphasise the expectation that these requirements are applicable in virtually all engagements to which the ISA is relevant;
• Eliminating any ambiguity about the status of the existing ISAs by modifying the language of current present tense statements, either by elevating them to “shall” statements or by eliminating the present tense to make it clear that there is no intention to create a requirement; and
• Improving the overall readability and understandability of the ISAs through structural and drafting improvements.

IAASB’s announcement was accompanied by an Explanatory Memorandum, an Exposure Draft of its Preface to international standards and Exposure Drafts of four ISAs1 redrafted in the new ‘clarified’ format.

The new "clarified" style that makes the standards easier to understand, translate, and implement. These standards will also significantly advance the process of global convergence and enhance the quality and uniformity of practice in audits worldwide.

Key elements of the Clarity Project drafting conventions included:

• Establishing an objective for the auditor with respect to the subject matter of each standard;
• Clearly distinguishing requirements from guidance on their application;
• Avoiding ambiguity through eliminating the present tense to describe actions by the auditor and using more imperative language where a requirement was intended; and
• Structural and drafting improvements to enhance the overall readability and understandability of the standards.

Results of the project

The project was complete in March 2009 and the clarified ISA’s are effective for audits of financial statements for periods beginning on or after December 15, 2009. The project resulted in 16 ISA’s and ISQC1 being revised and redrafted, 19 ISA’s being redrafted and 1 new ISA being introduced.

Some of the revised ISAs increase the rigour of auditing standards in key areas such as accounting estimates (including fair values), related parties and group audits.

The redrafted ISAs should be treated carefully as they have in fact been amended slightly and therefore to assume they did not change may be misleading. In particular, some content from the extant ISAs that was not in bold text may in fact have been elevated to requirements in the redrafted ISA.

Benefits of the clarified ISA’s

The clarified ISAs will strengthen audit practice in a number of key areas, such as:

• Communication with those charged with governance;
• Risk assessment, and the gathering and evaluation of audit evidence in relation to accounting estimates (including fair value estimates) and related party relationships and transactions; and
• The use of the work of others, such as an auditor's expert or other auditors in the context of audits of group financial statements.

(Extract of IAAS eNews, 12 March 2009)

New Clarity Centre Established on IFAC Website

To help with the implementation of the new ISAs, IFAC has developed an IAASB Clarity Centre (http://web.ifac.org/clarity-center/index). The materials available in the Clarity Centre include:

• The complete set of the clarified standards, marked to show changes, as a result of a consistency review of all the standards, from the earlier versions of the standards that were released following the Public Interest Oversight Board's approval of due process;
• Background information on the Clarity Project;
• A discussion of the new structure of the ISAs;
• Staff-prepared Basis for Conclusions for each standard, which provides a discussion of the main comments received on the exposure drafts and the IAASB's conclusions regarding these comments in developing the final standard; and
• Frequently asked questions about the clarified standards.

How we can help

We pride ourselves in being current and up-to-date in the delivery of our services. The clarity ISA’s are no exceptions. We can assist you in regards to the monthly:

• ISA update – highlighting the significant changes in the ISA (tailored for your needs).
• Quality control consulting – assisting you in updating your quality control procedures and manual for the revised and redrafted ISQC1 and ISA’s.

For more information email us on info@converg.co.za.