IRBA NEWS LETTER

Issue 35 | July-September 2016

STANDARDS c o n t .

Summary of Changes

Which are the new and revised Auditor Reporting Standards?

•

ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements;

•

ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report;

•

ISA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report;

•

ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report;

• ISA 570 (Revised),

Going Concern;

•

ISA 260 (Revised), Communication with Those Charged with Governance; and

•

In addition, the following related standards have also been revised:

•

ISA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information;

•

ISA 800 (Revised), Special Considerations - Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks;

•

ISA 805 (Revised), Special Considerations - Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement; and

•

ISA 810 (Revised), Engagements to Report on Summary Financial Statements.

What are Key Audit Matters (KAM)?

• From all the changes to the auditor’s report, KAM are expected

to have the most significant impact, not only on the auditor’s

report but also on the users of audited financial statements.

• KAM are defined as those matters that, in the auditor’s

professional judgement, were of most significance in the audit

of the financial statements of the current period. KAM are

selected from matters communicated to those charged with

governance.

• ISA 701, Communicating Key Audit Matters in the Independent

Auditor’s Report, deals with the auditor’s responsibility to

communicate KAM in the auditor’s report. It addresses both the

auditor’s judgement as to what to communicate in the auditor’s

report and the form and content of such communication.

• The auditor is required to communicate KAM in the auditor’s

report for all audits of complete sets of general purpose

financial statements of listed entities.

• KAM may also be applicable to entities other than listed

entities when the auditor is required by law or regulation to

communicate KAM in the auditor’s report or when the auditor

decides, for a particular audit, to voluntarily communicate KAM.

Summary of Findings from Pro Forma Inspections

• The descriptions of KAM communicated in the auditor’s report

were:

ºº Misaligned to the disclosure in the financial statements.

ºº Not comprehensive and clear enough for users with

limited financial background to easily understand the KAM

and make informed decisions.

ºº Found to omit reference to the relevant disclosure in the

financial statements.

ºº Contained “boilerplate” language.

ºº Misaligned to the information disclosed in the Audit

Committee Report.

• There was insufficient evidence or there were poor linkages in

working papers of the process followed in determining KAM.

• Working papers did not yet fully reflect all the changes arising

from the full suite of new and revised Auditor Reporting

Standards.

• Several elements of the format of the illustrative reports

contained in the South African Auditing Practice Statement (SAAPS) 3, Illustrative Reports, were found not to be followed,

or were completely omitted.

As firms and engagement teams finalise their preparations to

implement the new and revised standards, below we highlight the

resources developed to support implementation.

Click

here

for the webpage dedicated to the new and revised

Auditor Reporting Standards on the

IRBA

website.

Click

here

for the webpage dedicated to the new and revised

Auditor Reporting Standards on the

IAASB

website.

Early Adopters

Several companies and audit firms have decided on an early

adoption of the requirement of reporting on KAM. A list of these

companies is available on the

SAICA website.

KAM-on-a-Page

The IAASB has prepared a non-authoritative one-page diagram,

Determining and Communicating Key Audit Matters. It is intended

to provide an overview of how to determine which matters are

KAM as set out in ISA 701, Communicating Key Audit Matters in

the Independent Auditor’s Report, and what is communicated in

respect of KAM. The “KAM-on-a-page” diagram is available on the

IAASB website.

Committee for Auditing Standards (CFAS)

IRBA Staff Audit Practice Alert:

The Audit Implications of the

Expected Credit Loss Model for the Auditors of Banks

The IRBA’s Chief Executive Officer has approved for issue the IRBA

Staff Audit Practice Alert: The Audit Implications of the Expected

Credit Loss (ECL) Model for the Auditors of Banks (IRBA Staff Audit

Practice Alert) for use by registered auditors of banks. This IRBA