Printer Friendly

Should you care about the IAASB Clarity Project?

Readers may ask why one should give attention to fact that the International Auditing and Assurance Standards Board (IAASB) has embarked on an accounting standards Clarity Project. In the U.S., the Public Company Accounting Oversight Board (PCAOB) sets auditing standards for auditors of public companies and the American Institute of Certified Public Accountants (AICPA) has been setting auditing standards for auditors of private companies for 100 years. IAASB sets international auditing standards. I believe they should care, as the standards will eventually impact them--whether they are CFOs of public or private companies.

Now, with convergence of international accounting standards on the horizon, the AICPA Auditing Standards Board (ASB) has recently added a clarity project to its agenda--similar to the IAASB's--to help promote international convergence and to facilitate closer ties with the IAASB and PCAOB.

Although convergence of U.S. private-sector auditing standards with international auditing standards may not be quite as earth-shattering as the convergence of accounting standards, it will nevertheless have a major impact on CFOs. Just consider how the creation of PCAOB is impacting all of us.

Clarity Project Details

To understand the IAASB's Clarity Project, a brief review of the evolution of international auditing standards is helpful. The existing set of international auditing standards has been written over the last three decades, utilizing various drafting regimes; some use the convention of setting forth broad auditing principles in a short, standard section with very detailed guidance in the background and appendix sections. Others are very long and detailed standards with little supplemental guidance in the background or appendices.

A third convention emphasizes or bolds paragraphs, providing auditors with a list of required procedures that must be performed in every audit, utilizing a variety of words: the auditor "must" perform; "should" perform; "shall" perform; "should consider" performing; and several other variations. The auditor then needs to determine which of the preceding English wording conventions are requirements versus procedures that should be considered, but are not required, when conducting an audit.

As difficult as this might be in English, it is even more difficult in other languages. Most languages that the auditing standards are translated into do not have words that convey the subtleties of the English language.

Thus, the aim of the Clarity Project is to improve the clarity and consistency of IAASB standards by redrafting all standards using one consistent format and language, to make them more readable and to avoid any possible ambiguity as to what they require, and what the guidance is anywhere in the world.

IAASB launched the Clarity Project in late 2005, beginning the process of redrafting all key auditing standards. Significant progress has been made. By March, IAASB released the first of its redrafted standards:

* ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements;

* ISA 300, Planning an Audit of Financial Statements;

* ISA 315, Identifying and Assessing the Risks of Material Misstatements Through Understanding the Entity and Its Environment; and

* ISA 330, The Auditor's Response to Assessed Risk.

The redrafted standards have an effective date for periods beginning on or after Dec. 15, 2008. The ISAs are available free at the IFAC online bookstore at www.ifac.org/store.

IAASB has also issued an additional 11 exposure drafts (EDs) of redrafted international auditing standards. Proposed and redrafted standards where the comment period is still open are:

* IAS 570, Going Concern, comments due May 31, 2007; and

* IAS 550, Related Parties, comments due June 30, 2007.

EDs where the comment period has recently closed include:

* IAS 260, Communication with Those Charged with Governance, comments were due by Feb. 15;

* IAS 320, Materiality in Planning and Performing an Audit, comments by Feb. 15;

* IAS 450, Evaluation of Misstatements Identified during the Audit, comments by Feb. 15;

* IAS 230, Audit Documentation, comments by March 31;

* IAS 560, Subsequent Events, comments by March 31;

* IAS 610, The Auditor's Consideration on the Internal Audit Function, comments by March 31;

* IAS 720, The Auditor's Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements, comments by March 31;

* IAS 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, comments by April 30; and

* IAS 580, Written Representations, comments by April 30.

How is FEI involved in this process? As Chairman of FEI's Global Oversight Committee (GOC), I am a member of the Consultative Advisory Group (CAG) of the IAASB. CAG performs a similar role for IAASB as does the Standard Advisory Council (SAC) for the International Accounting Standards Board (IASB) and the Financial Accounting Standards Advisory Council (FASAC) for the Financial Accounting Standards Board (FASB).

Additionally, FEI's President and CEO, Michael Cangemi, is a member of both SAC and FASAC. CAG provides input to and assists IAASB by advising on IAASB's agenda and project timetables (work program), including project priorities; providing technical advice on projects; and it advises on other matters of relevance to IAASB activities.

During the past two years, I have participated in IAASB's Clarity Project by reviewing and commenting on the numerous EDs, and have witnessed how the international auditing standards are evolving.

Assuming that the AICPA ASB's Clarity Project is as comprehensive and all-encompassing as the IAASB's, I strongly recommend that FEI members begin to monitor and actively respond to both. They will have an impact on your role as a CFO, whether you work in a public or private company.

Contributed by David Morris, Chairman of FEI's Global Oversight Committee. Morris is owner of Morris Consulting and can be reached at david.morris.cpa@gmail.com.
COPYRIGHT 2007 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2007, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:financial reporting
Author:Morris, David
Publication:Financial Executive
Date:Jun 1, 2007
Words:923
Previous Article:Financial reporting complexity: FEI's four-point plan.
Next Article:Lawrence W. Smith named to FASB.


Related Articles
Classic a Trial run.
Ready or not . . .
Technique that quickly identifies bacteria has applications in food safety, health care, and homeland security.
GREYHAWK completes $24m high school project.
Competitiveness, complexity and financial executives ... intertwined.
Financial reporting complexity: FEI's four-point plan.
Derivative wars: a battle has been brewing on the accounting for derivatives--pitting corporate America's finance executives against...
Ask FERF about ... draft IFRS for SMEs.
Cartesis.
Committee on Private Companies (CPC).

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |