PHILIPPINE STANDARDS ON AUDITING UPDATES

IAASB CLARITY PROJECT

In March 2009, International Auditing & Assurance Standards Board completed its comprehensive review on all of its ISAs and International Standards on Quality Control (ISQCs). The improvements go beyond the enhancement of the understandability of the ISAs through the application of the new clarity conventions; they also include changes to requirements under certain auditing standards.

All clarified ISAs contain certain improvements arising from the Clarity Project, including:

1. Identify the auditor’s overall objectives
2. Clarify the obligations imposed on auditors
3. Improving the overall readability and understandability of the standards

For more information about the IAASB Clarity Project,go to Clarity of IAASB Standards - Completed

PSA 320 & PSA 450 (Revised and Redrafted) – MATERIALITY IN PLANNING AND PERFORMING AN AUDIT and  EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT

Materiality in Planning and Performing an Audit

The revised PSA 320 includes a requirement for the auditor to determine the following:

•  Materiality level for the financial statement as a whole.
•  Materiality level(s) for one or more particular classes of transactions, account balances or disclosures (if required by considering the specific circumstances of the entity).
• Performance materiality for the purposes of assessing the rsik of material misstatement and determining the nature, timing, and extent of further audit procedures

Evaluation of Misstatements Identified during the Audit

• This was previously covered by PSA 320
• Requires the auditor to accumulate misstatements identified during the audit, other than those clearly trivial
• Requires the auditor to consider the effect of uncorrected misstatements related to prior periods on the current year’s financial statements

PSA 560 (Redrafted) – SUBSEQUENT EVENTS

• Expanded definition  of subsequent events
• Redrafted to clarify the auditor’s responsibilities for subsequent events that occur

1. After the balance sheet date but before the date of the report;
2. After the date of the report but before FS are issued; and
3. After the FS are issued

• The use of dual-dating was illustrated

PSA 580 (Revised and Redrafted)– WRITTEN REPRESENTATION

• The standard is revised to address concern that the auditor may be over-relying on written representations
• The revised PSA 580 requires an auditor to obtain a representation letter from the management

PSA 600 (Revised and Redrafted) – SPECIAL CONSIDERATIONS-AUDITS OF GROUP FINANCIAL STATEMENTS (INCLUDING THE WORK OF COMPONENT AUDITORS)

• — —  PSA 600 apply to group audits and deals with special consideration that apply to group audits, in particular those that involve component auditor.
• —  The group engagement partner is responsible for the direction, supervision, and performance of the group audit engagement.
• —  The auditor’s report on the group financial statements shall not refer to a component auditor.

PSA 700 (Redrafted) – THE INDEPENDENT AUDITOR'S REPORT ON A COMPLETE SET OF GENERAL PURPOSE FINANCIAL STATEMENTS

Forming an Opinion and Reporting on Financial Statements

• Emphasizes the Independence of the Auditor in the title of the audit report
• Emphasizes the use of appropriate headings within the report
• Revised the wording of the Management’s Responsibility for the Financial Statements
• Prefers the use of the term unmodified over unqualified

PSA 705 (Revised and Redrafted) - Modifications to the Opinion in the Independent Auditor's Report

• PSA 705 deals with the auditor’s responsibility to issue an appropriate report in circumstances when a modification to the auditor’s opinion is necessary.
• The modification to the opinion in the independent auditor’s report was previously under PSA 701.
• Prohibition on issuing a piecemeal opinion
• Provided a detailed guidelines when modifying an opinion

PSA 706 (Revised and Redrafted) -EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR'S REPORT

—  PSA 706 deals with additional communication in the auditor’s report when the auditor considers it necessary to draw user’s attention to:

• Matter  or matters presented or disclosed in the financial statements
• Any matter or matters other than those presented or disclosed in the financial statements that are of such importance that they are fundamentals to users’ understanding of the auditor’s responsibility

—  “Emphasis of Matter” was previously dealt with by PSA 701

—  Introduces the use of “Other Matter” paragraph

PSA 706 requires the auditor’s report to include an emphasis of matter paragraph under the following circumstances:

• Early application of new accounting standard
• A major catastrophe with significant effect on the entity’s financial position
• Going concern uncertainty and other uncertainties relating to exceptional litigation or regulatory action (PSA 570)
• Financial statements prepared using Special Purpose Financial Reporting Frameworks (PSA 800)

—  PSA 706 requires the auditor’s report to include an other matter paragraph under the following:

• Reporting on comparatives (PSA 710)
• Material inconsistency  exists between other information and the audited financial statements (PSA720)
• Restriction on distribution or use of the auditor’s report (PSA 800, 805 and 810)
• Reporting on financial statements prepared using more than one financial reporting  frameworks

PSA 710 (Redrafted)–COMPARATIVE INFORMATION-CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS

• Clarifies the audit0r’s responsibility when reporting on comparatives when the prior year’s financial statements were
  • Audited by a continuing auditor
  • Audited by a predecessor  auditor
  • Not audited
• Requires the use of “Other Matter” paragraph

PSA 720 (Redrafted) –THE AUDITOR'S RESPONSIBILITIES RELATING TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS

• Clarifies the audit0r’s responsibility when reporting on financial statements included in a document that contains other information
• Requires the use of “Other Matter” paragraph when there is a material inconsistency between the financial statements audited and the other information

Special Purpose Financial Statements

• PSA 800 (old) applies to special purpose audit engagements
• PSA 800 was redrafted to include only audit of financial statements prepared using special purpose financial frameworks
• PSA 805 deals with audit of single FS or specific elements of a financial statement
• PSA 810 deals with the auditor’s report on summary FS

CREDITS:
Jekell Salosagcol
ACCOUNTING TEACHERS CONFERENCE
Naga, 2011

Posted in: Auditing Standards,PSA,Standards,Updates