Deloitte comment letter to the FRC on the IAASB’s Exposure Draft on proposed changes to various International Standards on Auditing (ISAs) to better deal with disclosures in financial statement audits

Published on: 04 Aug, 2014

We have published our comment letter to the Financial Reporting Council (FRC) on the International Auditing and Assurance Standards Board’s (IAASB’s) recently issued Exposure Draft (ED) ‘Addressing Disclosures in the Audit of Financial Statements’ that was published in May 2014.

The FRC issued a call for comments in June 2014 with the intention of using such comments received to assist it in developing its own response to the IAASB  and to assist it in developing proposals for the adoption into the UK equivalent ISAs (UK and Ireland) when the changes to the ISAs are finalised.

The IAASB ED, which follows an earlier discussion paper, proposes changes to various International Standards on Auditing (ISAs) to better deal with disclosures in financial statement audits. The ED seeks to achieve an appropriate focus by auditors on disclosures and encourage earlier auditor attention on them during the audit process, including disclosures where the information is not derived from the accounting system.

We agree with the need for the IAASB’s project, given the increasing relevance of disclosures to users of financial statements, and indicate our broad support for the IAASB’s proposals. The IAASB is proposing only minimal changes to the requirements of the standards, but extensive additions to the application material. 

We note the IAASB’s plans to change the assertions underlying the audit, which, whilst only in the application material, are fundamental to many firms’ methodologies. We note that whilst integrating “and related disclosures” into the underlying assertions relating to valuation, existence, completeness etc. will make auditors think in a joined up way, there is possibility that this might deemphasise the importance of disclosures which had previously had their own assertions. Linked to this proposal, the IAASB also needs to consider how these integrated assertions will cover disclosures that are not tied to specific balances, classes of transactions and events.

The application material offers auditors the chance to use different assertions as long as they can be shown to cover the same issues.  We suggest that the IAASB’s proposed Staff Publication could usefully indicate that where firms use this as a way of continuing to use the old assertions they will nevertheless need to be able to demonstrate a mapping to the new ones, including any necessary supplementation to policies and procedures to comply with the other changes in the application material.

The IAASB is proposing to change “adequate disclosures” to “appropriate disclosures” throughout the ISAs. This is welcome, because it recognises that the test of good disclosure should not just be “adequacy”; in some circumstances more disclosure can obscure an issue and be inappropriate. We ask that the IAASB co-ordinate finalisation of this project with the IASB’s ED/2014/1 Disclosure Initiative (Proposed amendments to IAS 1) which covers similar ground for preparers of financial statements.

Further comments and full response to all questions raised in the invitation to comment are contained within the full comment letter which can be downloaded below.


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