In September, the Institute’s Standard Setting Department responded to the International Auditing and Assurance Standards Board’s (IAASB) request for comments to an exposure draft related to the proposed narrow scope amendments to International Standard on Auditing (ISA) 700 (Revised) Forming an Opinion and Reporting on Financial Statements and ISA 260 (Revised) Communication with Those Charged with Governance as a result of the revisions to the International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) that require a firm to publicly disclose when a firm has applied the independence requirements for public interest entities (PIEs).
The Institute had responded to the exposure draft after the local comment period. The following provides a high-level summary of our response, which is available on our website.
Overall, we stated our support for the IAASB’s proposed narrow scope amendments in the exposure draft, which would be effective in supporting the operationalization of the revisions to the IESBA Code that require a firm to publicly disclose when it has applied the independence requirements for PIEs. The proposed narrow scope amendments should enhance communication between the practitioners and stakeholders in a transparent manner and increase stakeholders’ confidence in the audits and the audited financial statements.
In light of the objective of the proposed narrow scope amendments, we also agreed that the effective date for the proposed narrow scope amendments to be aligned with the effective date of the revisions to the IESBA Code, i.e. effective for audits of financial statements for periods beginning on or after 15 December 2024.
In our comment letter, we also recommended the IAASB to consider revising International Standard on Review Engagements (ISRE) 2400 (Revised) Engagements to Review Historical Financial Statements to address the transparency requirement in the relevant ethical requirements for independence applied for certain entities, such as the independence requirements for PIEs in the IESBA Code. Given that the IESBA’s new transparency requirement is in Part 4A of the IESBA Code which applies to both audit and review engagements, we are of the view that the related revision to ISRE 2400 (Revised) is sufficiently specific and narrow in scope, which should not lead to any unintended consequences and would enable consistent application and compliance with the IESBA Code.
IAASB’s next steps
IAASB is considering comments and suggestions received as a result of the exposure draft. It is anticipated that the IAASB will approve the final pronouncement of the narrow scope amendments by June 2023.
This article was contributed by the Institute’s Standard Setting Department.