ISA 540 (Revised): Update May 2018 ASB meeting Dan Montgomery May 17, 2018
Overview Update on March 2018 IAASB meeting and April 2018 board teleconference Significant revisions post-march Next steps Page 2
Update on March 2018 IAASB Meeting Good discussion and progress on draft of standard Significant areas of comments and discussion included: Introductory paragraphs (nature of accounting estimates, key concepts) (paragraphs 1-6) Obtaining an understanding of the entity and its environment and system of internal control (paragraph 10) Requirement for the auditor to obtain audit evidence in an unbiased manner (i.e., not directed toward audit evidence that is only corroborative and that excludes evidence that may be contradictory) (last sentence of paragraph 15) References to significant data (paragraph 17D and elsewhere) Auditor s range (paragraph 18C) Evaluation of disclosures (interplay of paragraphs 17E(b), 18C(b), 21 and 23) Documentation (paragraph 27) Page 3
Update on March 2018 IAASB Meeting (cont d) Overall impression that application material was much improved (structure, clarity and readability), with some areas still needing a bit more work Appendices Decision to delete Appendix 1 (Measurement Bases of Accounting Estimates) Appendix 2 (Inherent Risk Factors) retained but not discussed in detail and still to be updated Proposed Appendix 4 scalability examples board decided not to include in standard but directed the Task Force to continue to develop such examples as implementation support materials Effective date Concerns raised by some board members about the proposed calendar 2019 effective date Strong desire by banking and insurance regulators for more robust standard to be applied ASAP Many written comments received from board members during and after the meeting Page 4
Update on IAASB Teleconference Board teleconference on April 24 to discuss selected paragraphs and certain related application material Many of the paragraphs were the subject of comments and discussion in March General support for many changes but mixed reactions on others Consistent with previous plenary session and written comments Differing views and wording suggestions Task Force has continued to make revisions in response to the comments Page 5
Significant Revisions Introduction new paragraph added to further highlight points related to the separate assessment of control risk Paragraph 10 revisions to clarify certain aspects of the auditor s understanding and improve consistency with extant ISA 315 Paragraph 15 revised last sentence as follows: The auditor shall design and perform further audit procedures to obtain sufficient appropriate audit evidence in a manner that is neither biased toward obtaining audit evidence that may be corroborative nor toward excluding audit evidence that may be contradictory. Paragraphs 17B, C and D revised introductory wording to remove the reference to sufficient appropriate audit evidence and replace it with the auditor s further audit procedures shall address Paragraph 17D and elsewhere removed references to significant data or data that is significant Page 6
Significant Revisions (cont d) Paragraph 27 several revisions to documentation requirements Simplified the structure Removed the umbrella reference to significant professional judgments preceding 27(b) Changed the focus of 27(b)(i) to documenting the linkage of the further audit procedures with the assessed risks of material misstatement at the assertion level, taking into account the reasons (whether related to inherent risk or control risk) given to the assessment of those risks Consistent with existing requirement in paragraph 28(b) of ISA 330 Revisions to a number of application material paragraphs to improve clarity, consistency with the requirements, and to address other board comments Page 7
Next Steps Task Force to finalize the revisions to address board member comments on the April 24 teleconference and written comments received Revised draft expected to be posted on May 30 for the June board meeting Plan for final approval in June Vote to approve Separate vote on re-exposure Staff is preparing a comprehensive analysis of the changes made to the Exposure Draft to support the IAASB discussion on re-exposure Basis for Conclusions to be prepared following the June meeting PIOB approval of due process Page 8
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