Summary of IFAC Education Committee Meeting Held in Brasilia

Contact: Alta Prinsloo,

This summary of decisions of the IAASB has been prepared for information purposes only. Except for approval of documents for public exposure and issuance of final Standards or Statements, decisions reported are tentative and reflect only the current status of discussions on projects which might change after further deliberation by the IAASB.

For more detailed information about IAASB projects, please refer to the project summaries under Current Projects

Audit Risk

The Board reviewed the following documents:

• Proposed ISA 210, Audit Evidence;
• Proposed ISA 400, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement;
• Proposed ISA 401, The Auditor’s Procedures in Response to Assessed Risks;
• Amended ISA 200, Objectives and General Principles Governing An Audit of Financial Statements; and
• Proposed explanatory memorandum summarizing the structure and significant aspects of the new Standards.

The Board recommended certain content and editorial changes regarding the proposed documents. These changes were made and the proposed ISAs resubmitted to the Board for final review. Subject to minor editorial changes, the Board unanimously approved the proposed ISAs and explanatory memorandum for public exposure. The Board provided for a five month public comment exposure period ending March 31, 2003. The Exposure Drafts (EDs) will be available electronically by October 31, 2002.

IAASB Terms of Reference, Preface, and Policy Statements No. 1, 2 and 3

The Board discussed the agenda materials pertaining to the draft IAASB Terms of Reference, Preface document, and Policy Statements No. 1-3.

With respect to the Terms of Reference, the Board agreed to recommend to the IFAC Board that Member voting requirements should require Members to be present in person, by proxy or by concurrent telecommunication link, and that the minimum number of votes required for approval should be changed from 10 to 12. A number of additional editorial improvements will also be recommended.

With respect to the Preface, the Board made a number of changes to the draft and unanimously approved it for exposure.

With respect to the proposed Policy Statements, the Board decided that:

• Policy Statement (#1) addressing the Terms of Reference for the Consultative Advisory Group (CAG) should be presented to CAG at its October 2002 meeting for review and comment. A presentation to the IAASB by Mr. Fujinuma, President of IFAC, had indicated that a number of changes in the responsibilities of CAG were being considered.
• Policy Statement (#2) pertaining to the use of specific terminology should be retained as an internal reference document only.
• Policy Statement (#3) pertaining to the concept and use of black letter sentences, including guidance on the use of the term “should”, was approved for issue as an ED for public comment.

Following approval of the Terms of Reference by the IFAC Board, it is intended to expose the Terms of Reference, Preface and Policy Statement on black lettering. The EDs will be available electronically in November 2002.

Compliance with International Financial Reporting Standards (IFRSs)

The Board reviewed a draft Statement that provides guidance addressing the circumstance when reporting on the financial statements of an entity that includes an inaccurate statement regarding compliance with the requirements of IFRS. Board debate focused on the issue of whether a reservation of opinion or an emphasis of matter paragraph containing a qualification is the most suitable approach in such circumstances. In this regard, the Board decided that material related to the use of emphasis of matter paragraphs in the auditor’s report would be deleted for exposure.

Subject to editorial changes, the Board approved the proposed Statement for public exposure with a comment period of three months. The Board decided that an effective date will not be included and that the IAPS would be applicable upon final issuance. The ED will be available electronically by October 31, 2002.

Using the Work of Another Auditor and Group Audits

The Board discussed the scope of the new project to develop guidance on the subject of group audits. The Board decided that new standards and guidance relating to using the work of another auditor should take the form of:

• a revised ISA 600, Using the Work of Another Auditor; and
• an IAPS providing guidance on the application of the ISA in the context of group financial statements.

The revised ISA will not address standards and guidance pertaining to joint audits. A new project proposal will be developed for future consideration. As part of the communication process with other auditors, the Board agreed that the primary auditor should be required to communicate instructions to the other auditor, whose work is to be used by the principal auditor, to conduct his/her work in accordance with ISAs and to comply with IFAC Code of Ethics and Quality Control standards.As a result of the legal frameworks of certain countries, it was agreed that the division of responsibility provision in the existing ISA 600 is to be retained.

The IAPS will address, among others, matters relating to multi-location audits, and provide guidance on the application of ISA 550, Related Parties, difficulties relating to the principal auditor’s access to financial information when dealing with investments in associated companies, and the application of the standards relating to materiality.

The Board asked the Task Force to submit a first draft of revised ISA 600 and new IAPS to the Board at its December 2002 meeting.

Review of Interim Financial Information

The Board discussed the scope of the new project to develop an ISA providing standards governing the review of interim financial information. The Board agreed that that the ISA would address the review of interim financial information as required or allowed by regulation or legislature or equivalent authority, that audit-level knowledge of the client and internal controls would be required to be applied by the auditor, and that both oral and written reporting formats would be permitted. The Board agreed, subject to further review, that oral reporting would be allowed only in very specific circumstances, and that a specific recommendation or preference for written communication should be included in the guidance.

Agenda for Next meeting

The next Board meeting is schedule to take place December 8-13, 2002 in Miami, U.S.A. The Board anticipates approving exposure draft wording on:

• Review of Interim Financial Information
• Quality Control – revision to ISA 220 and draft International Standard on Member Obligations
• Moderate Assurance – revisions to ISA 100
• IAPS 1005 Update

Additionally, discussions will take place on the following projects:

• Using the Work of Another Auditor and Group Audits
• Revisions to ISA 700 – The Auditor’s Report on Financial Statements
• Materiality
• Audit of Accounting Estimates