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Proposed revised and redrafted International Standard on Auditing issued for comment by the International Auditing and Assurance Standards Board of the International Federation of Accountants

Comments from ACCA
November 2007

Executive Summary

ACCA welcomes the opportunity to comment on the proposed International Standard on Auditing ISA 805 (Revised and Redrafted) Engagements to Report on Summary Financial Statements (proposed ISA 805), issued for comment by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants.

Our comments are restricted to the changes proposed as a result of applying the Clarity project drafting conventions to the close off document of ISA 805 (Revised) that reflects IAASB decisions made after an earlier consultation.

In general, we support proposed ISA 805 in the form in which it is now revised and redrafted. In particular, we agree with the proposed form of opinion and the exclusion from its scope of documents relating to securities offered to the public.

We raise concerns about the elevation of some guidance material to the Requirements section and suggest repositioning of a requirement to a more appropriate section of proposed ISA 805. We also highlight, and suggest cross references to, material that is relevant to auditors in the context of the application of ISAs in the audit of full financial statements.

We also provide comments on some issues arising as a result of changes that have been (or are being) made to ISAs applicable to audits of full financial statements, as consequential amendments to proposed ISA 805 may be in prospect. These include reference to the premise on which an engagement is conducted and related management representations.

Matters on which Specific Comments are Requested

In this section of our response we address the issues identified for specific comment in the Explanatory Memorandum forming part of the Exposure Draft.

Form of Opinion

We agree with the approach taken in proposed ISA 805 with respect to the form of opinion. Although in some jurisdictions law or regulation prescribes other wording, proposed ISA 805 is sufficiently flexible to allow that to be used instead of the opinion otherwise required.

Summary Financial Statements Included in Documents Relating to Securities Offered to the Public

We agree with the exclusion from the scope of proposed ISA 805 of summary financial statements included in documents relating to securities offered to the public. In addition to the reasoning advanced in the Explanatory Memorandum, we suggest that it would be consistent with the approach we have supported in other ISAs, such as proposed ISA 560 Subsequent Events, whereby the ISA should not apply to securities offering documents.

Application of the Clarity Drafting Conventions

Objective

The objective of the auditor is acceptable.

The wording is comparable with a rephrasing of the overall objective of an audit [not the auditor] in the exposure draft of proposed ISA 200 (Revised and Redrafted) Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing. We suggest that the finalisation of proposed ISA 805 and proposed ISA 200 should include a check for appropriate consistency of objectives of the auditor. For example, a matter of detail is whether the word ‘independent' should be included in the objective of proposed ISA 805.

Requirements

Paragraph 7

We do not agree with the elevation of the following requirement (last sentence of paragraph 7): ‘The auditor shall also determine the effect that management's refusal may have on the auditor's acceptance of the engagement to audit the financial statements.'

While the guidance is appropriate, it should not become a requirement in an ISA whose scope is restricted to engagements to report on summary financial statements. The consideration of circumstances that may affect the auditor's actions in relation to the audit of financial statements should only be the subject of a requirement in ISAs applicable to such engagements.

As a matter of detail, the requirement refers to ‘acceptance' but circumstances may arise where the engagement to audit the [full] financial statements is already accepted. Unless it is possible to change the close off document in this regard (for example to add the words ‘or performance') the proposed requirement is too narrow. While guidance may focus on one aspect of the engagement to audit the financial statements, a requirement needs to be more rigorously worded.

Paragraph 13

Paragraph 13 refers to circumstances where the auditor's report on the summary financial statements is dated later than that on the financial statements: the requirement is to include an appropriate statement in the auditor's report on the summary financial statements.

This paragraph is not directly related to the heading under which it appears: ‘Timing of Work and Events Subsequent to the Date of the Auditor's Report on the Audited Financial Statements' . We recommend that it be repositioned under the heading ‘Auditor's Report on Summary Financial Statements. ' The paragraph could then follow extant paragraph 17, which deals with dating of the report.

Paragraph 17

The last sentence of paragraph 17 refers to two aspects of ‘sufficient appropriate evidence':

‘Sufficient appropriate evidence shall include evidence that the summary financial statements have been prepared and that management has asserted that it has taken responsibility for them.'

It is written as a requirement (‘shall') but not one that can be performed by the auditor. As a stand-alone requirement, it is not appropriate in a section of proposed ISA 805 dealing with elements of the auditor's report.

In the section of proposed ISA 805 dealing with the nature of procedures, Requirement 11(f) already deals with preparation and the sentence in paragraph 17 unnecessarily duplicates this.

The wording in paragraph 17 about management's assertion of responsibility is we suggest too brief to be a properly constituted requirement. Proposed ISA 805 does not contain requirements similar to those recently exposed for comment in relation to proposed ISA 580 (and proposed ISA 200) relating to the premise on which an engagement is conducted. We suggest that the need for conforming amendments ought to be addressed during their finalisation. In the current absence of any such changes, and for the reasons set out above, we strongly suggest returning the last sentence of paragraph 17 to the Application and Other Explanatory Material section.

Paragraph 25

Paragraph 25 contains requirements for circumstances where the auditor does not report on the summary financial statement. Although the requirements are conditional on the auditor becoming aware that the entity plans to make a certain statement, they are nevertheless outside the direct scope of proposed ISA 805.

We are aware of the fact that the close off document includes these requirements. Accordingly, we can only suggest that reference ought to be made to them in some way to alert the auditor of financial statements to their existence. This might be done, for example, during the finalisation of the revision and redrafting of ISA 720 Other Information in Documents Containing Audited Financial Statements.

Other Matters

The Explanatory Memorandum forming part of the Exposure Draft invites comments on the following other matters:

• Special considerations in the audit of small entities
• Special considerations in the audit of public sector entities
• Developing nations
• Translations
• Undue costs

We have no significant comments on these matters.

Comments from ACCA [on proposed ISA 560], April 2007.

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