The consultation paper sets out the following strategic objectives for the 2015-2019 periods, as identified by the IAASB:

• Develop and maintain high-quality International Standards on Auditing (ISAs) that are accepted as the basis for high-quality financial statement audits. This will involve, among other things, responding to key implementation issues identified, liaison with audit inspection groups and considering feedback from a stakeholder survey
• Ensure the IAASB’s suite of standards continues to be relevant in a changing world by responding to stakeholder needs. This may consider the impact of increasingly complex information technology reliant business environments, changes in financial reporting and internal control standards, new innovative forms of reporting such as integrated reporting, activities that promote the adoption of the IAASB's standards, and processes to review implementation issues (including post-implementation reviews)
• Collaborate and cooperate with contributors to the financial reporting supply chain to foster audit quality and stay informed. This will involve continued liaison and further development of relationships with key stakeholders, including the International Accounting Standards Board (IASB), International Forum of Independent Audit Regulators (IFIAR), International Organization of Securities Commissions (IOSCO), the Financial Stability Board (FSB), the IAASB's Consultative Advisory Group (CAG), practitioners, International Organisation of Supreme Audit Institutions (INTOSAI), national standard setters, and others.

The IAASB acknowledges its work is highly influenced by the international environment in which it operates, and cites the particular importance of global developments such the G20's commitment to reform of the financial system in light of the global financial crisis, IOSCO's new strategic direction, and recent audit reforms of the European Commission (EC) and US Public Company Accounting Oversight Board (PCAOB).

In terms of its 2015-2016 work plan, the IAASB proposes prioritising the following topics:

• Quality control - Consideration of issues related to ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and related provisions of ISA 220 Quality Control for an Audit of Financial Statements, with a view to possible amendments or possibly a new ISA on engagement quality control reviews (EQCRs). Additional guidance such as staff publications will also be considered
• Professional scepticism - Consideration of how to reinforce the concept of professional scepticism in an audit, which may result in amendments to ISAs, additional requirements or guidance
• Special audit considerations relevant to financial institutions - focused on clarifying and enhancing the relationship between the banking supervisors and the bank’s external auditors, and address auditing issues surrounding the use of fair value accounting and related estimates (including impairment and loan loss provisioning). Revision of existing ISAs will be considered, as will the development of a special consideration ISAs, International Auditing Practice Notes (IAPNs) or other guidance.

Other activities planned for 2015-2016 include stakeholder liaison, supporting global adoption of ISAs, the development of a post-implementation review process for the IAASB's other assurance and related services standards, and information gathering on topics such as integrated reporting and group audits.

Comments on the consultation paper are requested by 4 April 2014. Click for IAASB release (link to IFAC website).

The Consultation Paper outlines four key strategic themes identified by the IESBA:

• Maintaining a high-quality Code of Ethics for application by professional accountants globally - maintaining a focus on independence standards for audits of financial statements but also to more comprehensively address the particular ethical issues faced by professional accountants in business
• Promoting and facilitating the adoption and effective implementation of the Code - responding to perceived barriers to the adoption of the Code by reviewing the current structure and draft convention of the Code so that it is written in a way that is easier to understand and adopt
• Evolving the Code for continued relevance in a changing global environment - in relation to regulatory developments around the nature and extent of services auditors can provide to their clients and continuing globalisation of capital markets increasing complexity and opacity in some areas, particularly collective investment vehicles
• Increasing engagement and cooperation with key stakeholders - forging closer working relationships with key stakeholder groups, including regulators and auditor oversight bodies, national standard setters, the profession, investors and International Federation of Accountants (IFAC) member bodies.

The paper also outlines the various projects the IESBA intends to undertake in responding to the above themes.

The Consultation Paper is open for comment until 28 February 2014. Click for IESBA announcement (link to IFAC website).

The proposed International Education Standard IES 8 Professional Competence for Engagement Partners Responsible for Audits of Financial Statements, outlines learning outcomes for professional competence that professional accountants are required to demonstrate when performing the role of an engagement partner responsible for audits of financial statements.

The IES would require member bodies of the International Federation of Accountants (IFAC) to require professional accountants performing this role to undertake continuing professional development (CPD) that maintains and further develops the professional competence required. The exposure draft includes a table of learning outcomes in various competence areas, including technical competence, professional skills and professional values, ethics and attitudes.

In developing the revised exposure draft, the IAESB responded to 'mixed' constituent feedback on an earlier exposure draft published in August 2012, with saw clarifications being sought in a number of areas:

• improving the clarity of the title, objective, and scope paragraphs to ensure that there is focus on professional competence
• focusing the requirement on learning outcomes related to the professional competence required of engagement partners responsible for audits of financial statements
• improving the clarity of the explanatory material by delineating the scope, explaining the concepts of learning outcomes and competence areas, and discussing the importance of applying professional scepticism in assessing audit evidence and exercising professional judgement when determining an appropriate audit strategy
• amending the explanatory material related to engagement partners of small and medium practices to emphasise the relevance of CPD even though they may undertake a much wider range of tasks in performing the audit than would otherwise be the case.

The proposals are accompanied by an explanatory supplement to demonstrate how the text of the existing IES 8 maps to the proposed IES 8, and a marked up version of the August 2012 exposure draft showing changes made in developing the current exposure draft.

Comments on the proposals close on 17 April 2014 and the IAESB intends to finalise the revised standard by the end of 2014. Click for (links to IFAC website):

• IAESB press release
• Full text of the exposure draft
• Supplement to the exposure draft

The revised International Standard on Assurance Engagements (ISAE), ISAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information, contains requirements and application and other explanatory material specific to reasonable and limited assurance attestation engagements, but can also be applied to 'direct engagements' if the requirements are adapted and supplemented as necessary. An assurance engagement is one in "which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the measurement or evaluation of an underlying subject matter against criteria)." Accordingly, the ISAE requires the practitioner to obtain an understanding of the underlying subject matter and respond to risks of material misstatement in the subject matter information.

The selection of appropriate criteria is also a key part of applying the ISAE, and are determined in the context of the engagement circumstances using the exercise of professional judgement. The ISAE provides the example of customer satisfaction being measured by reference to the number of resolved customer complaints, or alternatively by reference to the number of repeat purchases made in a period of time following an initial purchase (of course, many other measures may be available and relevant to an engagement). The practitioner is required to assess the suitability of the criteria and the assurance report identifies the applicable criteria against which the underlying subject matter was measured or evaluated, including where relevant the source of the criteria, measurement or evaluation methods used, significant interpretations made and changes in methods used.

The ISAE outlines the various professional requirements a practitioner must following in undertaking their work, such as ethical requirements, engagement acceptance, quality control, and planning and performing the engagement, and the reporting obligations. Practitioners are required to comply with the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA) related to assurance engagements, and also requires the engagement partner to be a member of a firm that applies International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.

Some of the changes made in response to constituent comment include:

• Limiting the ISAE within the context of attestation engagements only, rather than both attestation engagements and direct engagements, but allowing its use in direct engagements. Consideration of direct engagements may be the subject of a future project
• Including additional application material highlighting how the nature and extent of procedures may vary between 'reasonable assurance' (expressed in a positive form) and 'limited assurance' engagements
• The adoption of a 'columns' approach to more clearly delineate the key requirements where the work effort differs between reasonable and limited assurance, and further clarify the work effort through terminology changes and other guidance
• Giving greater emphasis to the importance of a practitioner's consideration of whether the criteria are suitable
• Providing additional guidance on the form and content of the practitioner's report.

The revised ISAE 3000 is effective for assurance engagements where the assurance report is dated on or after 15 December 2015. Click for more information (link to IFAC website).

The release of the practice guide follows the publication of an exposure draft in November 2012 and considers how entities evaluate capital spending and investment decisions such as 'make or buy' and 'lease or buy' decisions, acquisitions and disposals of businesses, and development or discontinuation of products and services.

The guide identifies the following (summarised) key principles which are considered good practice:

• The time value of money should be considered in appraising multi-period investments
• The time value of money should represent the opportunity cost of capital
• Discount rates used in DCF analysis should reflect risks associated with the appraised project rather then the organisation undertaking the project
• Good decision making relies on understanding the business, and be considered in the context of the organisation's strategy, as well as economic, social (e.g. labour practices), environmental (e.g. pollution) and competitive factors
• Project cash flows should be estimated incrementally
• Assumptions used should be supported by reasoned judgement and include techniques such as sensitivity analyses
• Post-completion reviews of audits of decisions should include an assessment of the decision-making process and the results, benefits and outcomes of the decision.

In discussing the second principle above, the guide notes that the opportunity cost of capital is fundamental to investment decisions. It discusses some of the practical issues that can be encountered in determining the opportunity cost of capital under the weighted average cost of capital (WACC) approach, including difficulties in determining the cost of equity capital due to challenges and limitations in applying techniques such as the Capital Asset Pricing Model (CAPM). The paper notes the following in relation to how these issues are addressed under International Financial Reporting Standards:

To provide organizations flexibility in applying and estimating the cost of capital, International Accounting Standard 36, Impairment of Assets... suggests that an organization could also take into account its incremental borrowing rate and other market borrowing rates. As an entirely debt-funded organization would be of high risk, there is always an implied equity (i.e., risk absorbing capital) element and this concentrating risk will have a higher implied cost. Therefore, professional accountants in business should be aware of the disadvantages associated with these methods and apply them appropriately given the organizational context. For example, depending on the debt-equity ratio the cost of debt, the nominal borrowing rate, and the WACC will provide varying values. Thus, for a lowly-leveraged organization, the use of the incremental borrowing rate as the cost of capital could lead to an inappropriately low estimate for cost of funds in use.

The principle that investment analyses to consider wider external impacts is in many respects similar to the idea of 'integrated thinking' in the International Integrated Reporting Council (IIRC) draft integrated reporting framework. The guide notes that the investment analysis should "probe behind cash flow estimates to understand both the nature of a positive NPV and the source of value over the opportunity cost of capital". The port goes on to note the difficulties in quantification of aspects of environmental and social performance and the current emphasis on 'hard' measures of performance. In the specific example of undervaluing ecosystems, it draws on earlier research undertaken by the World Council for Sustainable Development, and notes a worst case outcome of "undermined business performance by failing to identify new cost-saving or revenue-generating opportunities or to highlight potentially costly liabilities".

Click for IFAC press release (link to IFAC website).

The IAASB undertook its 'clarification' project over a number of years, and all the clarified ISAs were finalised in 2009. The objectives of the clarification project were to improve the clarity and understandability of ISAs and International Standard on Quality Control (ISQC) 1, in order to facilitate consistency in their application. The clarification process also resulted in substantial revisions to around half of the ISAs.

The post-implementation review follows an earlier pre-implementation process that was conducted over 2009-2010, which saw the changes clarified ISAs being viewed as helpful improvements. Input into the post-implementation review process was received from within the profession (including from accounting firms and International Federation of Accountants (IFAC) member bodies) and from external groups (including independent audit inspection bodies and other regulators).

Findings from the review include:

• There was general agreement that the clarified ISAs were an improvement and were generally well received, with some specific feedback on the format of ISAs
• Although there is acceptance that common auditing standards is beneficial to audit quality on a global basis, this is not considered automatic "given differences in culture and the stage of development of the auditing profession in different jurisdictions"
• Training, additional guidance, methodology and technical support are essential to achieve consistent application of ISAs
• There were mixed views as to whether the revised ISAs achieve the right balance between principles and rules, and whether they have resulted in too little or too much documentation
• In terms of comments on individual ISAs, numerous comments were received, and these were classified into priority 'themes'. The key priorities include:
  • More emphasis on professional scepticism is needed in a number of ISAs (ISA 200 and others)
  • Concerns were expressed by regulators that engagement quality control reviews (EQCRs) are not sufficiently robust (ISA 220)
  • There is concern that the nature and number of significant risks identified in practice, and in applying the requirements to obtain an understanding of an entity's internal control (ISA 315)
  • Many concerns were raised about inconsistency in the degree to which the group auditor becomes involved in the work of component auditors, and in the determination of component materiality (ISA 600)

The report also outlines findings from a survey of small and medium sized practices on the audits of small and medium sized entities, and a further survey of audit committees focused on communications with those charged with governance, including on deficiencies in internal control (ISA 260 and ISA 265).

The findings from the review will be incorporated into the IAASB's standard setting activities and the development of its strategy and work plan for 2015-2019. Earlier in 2013, the IAASB undertook a survey as a first step in developing its strategy and work plan.

Click for IAASB press release (link to IFAC website).

The draft framework, titled Good Governance in the Public Sector, was developed by an 'international reference group' of individuals drawn from a wide range of organisations, although each member acted in their personal capacity. The draft framework is not intended to replace national and sectoral governance codes, but instead is designed to be used in updates and reviews of any such codes. It covers a broad array of topics, including a commitment to integrity, ethical values, and the rule of law, stakeholder engagement, internal control, and financial management.

On the topic of accountability, the draft framework asserts that "public sector entities need to demonstrate that they have delivered their stated commitments, requirements, and priorities and have used public resources effectively in doing so", and so recommends reporting publicly, at least annually, performance information and accompanying financial statements. The framework recommends the financial statements be prepared in accordance with International Public Sector Accounting Standards (IPSASs), as issued by the International Public Sector Accountancy Standards Board (IPSASB), and that those financial statements be subject to external audit. In this regard, the document draws from, and references, an earlier report from the International Monetary Fund (IMF), Fiscal Transparency, Accountability, and Risk (link to IMF website), which provides more background information and includes calls for a greater emphasis on the international reporting standards applying to the consolidated public sector.

In addition, the draft framework also recommends defining public sector outcomes in terms of sustainable economic, social and environmental benefits, and accordingly calls for public sector entities to consider the combined economic, social, and environmental impact of their policies, plans, and decisions. In this regard, it puts forward the view that it is "essential that future obligations to citizens are fully reflected in the long-term budget and that all future liabilities are completely transparent" (see also an IPSASB proposal on this topic published in 2011).

Comments on the draft framework close on 17 September 2013. Click for press release (link to IFAC website).

Following is a brief summary of the new requirements:

• Conflicts of interest.  The revised Code includes specific requirements guidance on identifying, evaluating, and managing conflicts of interest. The new guidance states that a professional accountant must not allow a conflict of interest to compromise professional or business judgement, provides examples of possible conflicts of interest, and explains how to manage conflicts of interest whilst maintaining confidentiality and complying with the other provisions of the code.  The new requirements follow the publication of an exposure draft in December 2011 and are effective from 1 July 2014
• Breaches of the Code.  The revised Code requires new requirements where a breach of an independence requirement the Code has occurred.  The Code now requires a firm to undertake various actions, which may include terminating the relationship causing the breach, evaluating the significance of the breach, communicating the breach, and documentation requirements.  These amendments resulted from an exposure draft published in October 2011 and are effective from 1 April 2014
• Definition of 'engagement team'.  These amendments to the code ensure consistency with the revised International Standard on Auditing ISA 610 Using the Work of Internal Auditors, which now provides guidance on when internal auditors can provide direct assistance to the external auditor. The revised definition of the term “engagement team ” excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of ISA 610. The revised definition is the result of a February 2012 exposure draft and is effective for audits of financial statements for periods ending on or after 15 December 2014.

Click for IESBA press release (link to IFAC website).

The new requirements are contained in a revised version of International Standard on Auditing ISA 610 Using the Work of Internal Auditors, and follows an earlier revision to the standard in March 2012.

At the time of issuing the revised ISA 610 in 2012, the IAASB decided to only include provisions addressing the external auditor’s use of the work of the internal audit function, so as to allow the International Ethics Standards Board for Accountants (IESBA) to expose complimentary amendments to the Code of Ethics for Professional Accountants to deal with the nature of the audit "engagement team".

With the release of the revised ISA, the standard now contains information about:

• When an auditor may use internal auditors to provide direct assistance (if not prohibited by relevant laws), prohibiting such involvement where there are significant threats to the objectivity of the internal auditor, or where the internal auditor lacks sufficient competence to perform the proposed work
• Guidance on the nature and extent of work that can be assigned to internal auditors, prohibiting involvement in such areas as significant audit judgements, higher risk areas or areas where the internal auditor has been involved
• Process steps involved in using an internal auditor, including written agreement from authorised representations that internal auditors can follow the directions of the external auditor, confidentiality requirements, and the direction, supervision and review of the internal auditor's work
• Audit documentation requirements.

Consistent with the discussion above, the new requirements make it clear that an audit “engagement team” excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of ISA 610 and the Code of Ethics for Professional Accountants has also been similarly amended. A number of consequential amendments are also made to various other pronouncements to take the new requirements into account.

The revisions to ISA 610 are effective for audits of financial statements for periods ending on or after 15 December 2014.

Click for IAASB press release (link to IFAC website).