ISA 720 (UK and Ireland) Revised
Comments from ACCA
January 2006
ACCA is pleased to provide comments on the Exposure Draft ISA (UK and Ireland) 720 (Revised). During the course of its exposure period, the Chancellor of the Exchequer announced that the Government intended to repeal the statutory requirement for an operating and financial review (OFR). In accordance with the subsequent announcement, that the APB no longer sought comments on the proposals in Section B of the exposure draft, we restrict our comments to the material presented in Sections A and C.
There remains the likelihood that many listed companies will continue to publish an OFR on a voluntary basis. There is also the possibility that a non-statutory requirement to do so will be placed on listed companies. Should the APB wish to issue specific guidance in relation to such reporting, it will be necessary to expose such proposals for comment. In deciding on the implementation date of ISA 720 (UK and Ireland) (Revised), the APB will no doubt take into account the probability that OFR-related changes will be made in the short-term to the required content of the Directors’ Report.
We find the new material in sections A and C to be acceptable. We do not repeat comments made at the time of issue of the exposure draft of extant ISA 720 (UK and Ireland) as the APB has issued proposals that UK and Ireland ‘plusses’ will be considered at an appropriate time in relation to the IAASB ‘Clarity project’.
The removal of Section B calls into question the format of the proposed ISA (UK and Ireland). Extant ISA 720 (UK & Ireland) is not divided into sections. Special factors relating to the Directors’ Report are dealt with by means of ‘plusses’. Although the reporting requirement has changed to one that is explicit, there is no change in substance in the underlying work of the auditor and it would be relatively easy to continue with a format that combined the material from Sections A and C. This would shorten the document and remove duplication.
Conversely, some users may continue to find it more convenient to have the material on the Directors’ Report separate. There is a danger with that, however, as some may not realise that Section A also applies to other information for which there is a statutory or regulatory requirement to report on consistency with the financial statements (paragraph 3 of Section A).
As well as reconsidering the alternatives of combining or keeping separate, Sections A and C, we suggest that the APB should consider whether the material might be better presented in sections having different purposes. This suggestion is made in the light of the IAASB Clarity project and the eventual need of the APB to adopt ISA following implementation of the revised ‘8th Directive’. The revised ISA 720 (UK & Ireland) could present the text of ISA 720 as its Section A and put all UK & Ireland plusses in a Section B.