International Auditing

Standards
Mary Radford

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International Auditing Standards

What we will cover:

ƒ Background
ƒ Key ISAs (UK and Ireland)
ƒ Changes and impact on external audit
ƒ Possible consequences for internal audit
and risk management

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Background

ƒ IAASB issues International Standards on

Auditing
ƒ On going programme of ISA revision
ƒ EU 8Th Directive will require member
states to adopt ISAs
ƒ Will apply to the audit of all entities

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Background

ƒ Auditing Practices Board issues ISAs (UK

& Ireland)
ƒ Based on IAASB ISA’s but include
additional material
ƒ Will apply to all audits of financial
statements for commencing on or after
15th December 2004

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Background

ƒ Heads of public audit agencies have

formally adopted ISAs (UK and Ireland)
ƒ INTOSAI has input to IAASB development
of ISAs
ƒ APB publishes sector specific guidance –
PN10

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Key ISAs (UK and Ireland)
The most significant changes are contained in:
ƒ ISA 240 – The Auditor’s Responsibility to
Consider Fraud in an Audit of Financial
Statements
ƒ ISA 315 – Obtaining an understanding of the
Entity and its Environment and assessing the
Risks of Material Misstatement
ƒ ISA 330 – The Auditor’s Response to
Assessed Risk
ƒ ISA 500 – Audit Evidence

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ISA 240 – The Auditor’s Responsibility to
Consider Fraud in an Audit of Financial
Statements.
The ISA (UK and Ireland) requires the auditor to:
ƒ Discuss fraud risk and incidence with management and
those charged with governance.
ƒ Discuss within the engagement team how the financial
statements may be susceptible to material misstatement
due to fraud and what audit procedures would be most
effective.
ƒ Consider whether one or more fraud factors risk factors
are present.

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ISA 240 – The Auditor’s Responsibility to
Consider Fraud in an Audit of Financial
Statements.
The ISA (UK and Ireland) requires the auditor to:
ƒ Perform audit procedures to address the risk of
management override of controls by testing journal
entries, reviewing accounting estimates for bias, and
understanding the business rationale for significant
transactions outside the normal course of business.
ƒ Obtain specific representations from management
including its assessment of the risk of fraud
ƒ Implications for money laundering reporting.

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ISA 315 – Obtaining an Understanding of the Entity
and its Environment and Assessing the Risks of
Material Misstatement

‘The auditor should obtain an understanding of

the entity and its environment, including its
internal control , sufficient to identify and assess
the risks of material misstatement of the
financial statements whether they are due to
fraud or error, and sufficient to design and
perform further audit procedures’.

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ISA (UK and Ireland)315 – Obtaining an
Understanding of the Entity and its Environment
and Assessing the Risks of Material Misstatement
The ISA (UK and Ireland) requires the audit team
to:
ƒ Obtain, and document a broad understanding of the
entity and its environment, including its processes for
identifying business risks relevant to financial reporting
objectives and its information systems and internal
control.
ƒ Discuss the susceptibility of the entity’s financial
statements to material misstatement.

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ISA (UK and Ireland)315 – Obtaining an
Understanding of the Entity and its Environment
and Assessing the Risks of Material Misstatement
The ISA (UK and Ireland) requires :
ƒ As part of the risk assessment, the auditor should
determine which risks identified are, in the auditor’s
judgement, risks that require special audit consideration
(‘Significant Risks’).

ƒ The audit team must evaluate the design and determine

the implementation of key controls relevant to the audit.

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ISA (UK and Ireland)330 – The Auditor's
Response to Assessed Risk
ƒ For each risk of material misstatement assessed
under ISA (UK and Ireland) 315, the ISA
requires a response at two levels:
– The Financial Statement level; and
– The assertion level.

ƒ Audit documentation must link the assessed

risk to the evidence gathered.

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ISA 500 – Audit Evidence

ƒ Introduces six new audit assertions.

ƒ ISA 500 places a different emphasis on
certain areas (e.g. disclosure) and audit
teams will need to ensure that the audit
approach covers these areas.
ƒ However auditors can express the
assertions differently, provided all are
covered.

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Practice Note 10 (Revised)

ƒ Sector specific guidance for the audit of

public sector entities
ƒ To be applied by all auditors, not just
public audit agencies
ƒ Provides guidance on application of ISAs
in public sector context, including the
audit of regularity

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Possible consequences for Internal
Audit
The impact of ISAs (UK and Ireland) on
internal audit will vary from client to client.
However, there is increased motivation for
the external auditor to liaise with and rely
on the work of internal audit.
Feedback from clients highlights the need
for the NAO to make maximum use of the
work of internal audit.

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Possible consequences for Internal
Audit
ƒ Key areas where external audit may rely
on the work of internal audit:
- Documentation of control environment
- Review of internal control systems
- Consideration of the risk of fraud in the
context of the financial statements
- Review of entity’s own risk assessment
processes

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Possible consequences for risk
management/reporting
ƒ Focus on controls design and fraud risk
ƒ Input to the assurance build
ƒ Approach to the audit committee/risk
committee
ƒ Corporate Governance statements

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Other Sources of Information

ƒ ICAEW publication – ‘Auditing Standards –

All Change!’
The following websites are also of use:
ƒ WWW.audit2005.com
ƒ WWW.frc.org.uk/apb
ƒ WWW.ifac.org./iaasb

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International Auditing Standards

Any questions?

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