Auditing

Accountancy SA,  Jan 2003  by Agulhas, Bernard

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ASC ISSUES EXPOSURE DRAFTS FOR COMMENT

The Auditing Standards Committee (ASC) of the Public Accountants' and Auditors' Board (PAAB) issued the following International Federation of Accountants (IFAC) exposure drafts (EDs) for comment in South Africa:

TITLE | Reporting on Compliance with International Financial Reporting Standards COMMENT DATE | 8 January 2003

TITLE | Audit Risk: Proposed International Standards on Auditing and Proposed Amendment to ISA 200, Objective and General Principles Governing an Audit of Financial Statements COMMENT DATE | 14 March 2003

'These EDs can be downloaded from the PAAB web site at www.paab.co.za/ AuditingStandard/AuditingStandards_003:html

The proposed practice statement on Reporting on Compliance with International Financial Reporting Standards (IFRSs), supplements guidance provided in International Standard on Auditing (ISA) 200, Objective and General Principles Governing an Audit of Financial Statements, and ISA 700, The Auditor's Report on Financial Statements. In particular, it provides additional guidance when the auditor expresses an opinion on financial statements prepared in accordance with:

* IFRSs;

* IFRSs and relevant national standards and practices; and

* Relevant national standards and practices but where disclosure is given in the notes to the financial statements on the extent of compliance with IFRSs.

The International Auditing and Assurance Standards Board PAASBI states in its explanatory memorandum to the audit risk exposure draft that "it believes the proposed ISAs will increase audit quality as a result of better risk assessments and improved design and performance of audit procedures to respond to the risks. The improved linkage of audit procedures and assessed risks is expected to result in a greater concentration of effort on areas where there is a greater risk of misstatement. In some cases, this may result in a change to the audit approach, including the audit procedures performed. In many cases, implementation of the proposed ISAs will result in an overall increased work effort by the audit team, particularly for new engagements or when first implemented on continuing engagements. It is also likely that, to implement the new requirements, will require new skills and competencies, and may increase the need for specialist assistance on audits."

*Ali registered accountants and auditors in public practice are urged to submit their comments on the audit risk exposure draft since these Standards establish the basic framework for the audit process.

All comments received on these exposure drafts will be submitted to the IAASB and will also be considered by the ASC in finalising the proposed South African Auditing Practice Statements (SAAPS) and statements of South African Auditing Standards (SAAS).

Contact Karen Lauf, Director: Auditing Standards, should you wish to obtain further information in this regard (see contact details on last page).

ASB APPROVES NEW PRONOUNCEMENTS

At its last meeting on 18 October 2002 the Auditing Standards Board (ASB) of the Public Accountants' and Auditors' Board (PAAB) approved for issue the following pronouncements:

* SAAS 502, Enquiries Regarding Litigation and Claims, which becomes effective for all audit reports issued on or after 31 Jane 2003. This statement of SAAS will replace AU 257, Enquiries of Attorneys, which will be withdrawn from the eftective date of this statement of SAAS.

* SAAS 545, AuditingFair Value Measurernents and Disclosures, which becomes effective for audits of financial statements for periods dir on or after 31 December 2003.

* SAABS 1004, The Relationship Between Banking Supervisors and Banks' External Auditors.

* SAAPS 1006, Audits of the fF;nancial Statements of Banks.

SAAS 502 establishes new requirements when dealing with enquiries regarding litigation and claims. In particular, the standard requires the following:

* Representation letters are only to be sent when the auditor has identified material litigation and claims or believes they may exist, i.e. they are not sent as a matter of course.

* The representation letter should only be sent once the auditor is satisfied that the letter has been properly completed by management. (Attorneys have been instructed not to respond to requests where the schedule to the request has not been properly completed).

* Attorneys are afforded the opportunity to bring to the auditors' attention further material litigation and claims of which they are aware. The request for the representation letter is to provide an indication of the amount below which litigation and claims are not considered material for the purposes of the enquiry and which need not be considered by attorneys when attorneys take the opportunity of bringing further litigation and claims of which they aware to the attention of the auditor.

SAAS 502: also provides guidance on enquiries of employee legal advisors.

SAAS 545 is based on ISA 545, which was issued to address the increasing number of complex accounting pronouncements containing measurement and disclosure provisions based on fair value. It addresses audit considerations relating to the valuation, measurement, presentation and disclosure for material assets, liabilities, and specific components of equity presented or disclosed at fair value in financial statements. In particular SAAS 545 provides guidance on: