Proposals relating to International Auditing Practice Statements (IAPSs)

Comments from ACCA to the International Auditing and Assurance Standards Board (IAASB), February 2011.

Executive summary 

ACCA welcomes the opportunity to respond to a document issued for comment by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants.

The document comprises two exposure drafts:

  1. Proposals Relating to International Auditing Practice Statements (IAPSs):
    • Withdrawal of Existing IAPSs
    • Clarification of the Status and Authority of New IAPSs
    • Proposed Amendments to the Preface to the International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements.
  2. Proposed International Auditing Practice Statement:
    • IAPS 1000 Special Considerations in Auditing Complex Financial Instruments

We present our views on the exposure drafts (‘proposals on IAPSs’ and ‘proposed IAPS 1000’) in separate sections of these comments.

We are supportive of the withdrawal of existing IAPSs and the proposals for the use and updating of material that will be of continuing relevance to auditors and hence beneficial to the quality of auditing. We agree with the pragmatic solutions proposed to clarify the status of IAPSs.

We were pleased to comment on an earlier consultation paper that dealt with the IAASB’s plans to develop guidance relating to auditing complex financial instruments. That paper included as an appendix Practice Note 23 (Revised) Auditing Complex Financial Instruments (PN 23), which was issued in October 2009 as interim guidance by the UK Auditing Practices Board (APB). We have been supportive of PN 23 in its UK and Ireland context. Because of the foregoing we are generally in agreement with proposed IAPS 1000 and we have confined our response to answering the specific questions asked in the exposure draft.

Proposals on IAPSS


We agree with the proposal to withdraw the existing IAPSs. There is little point in preserving some of the guidance, given that it is neither consistent with the clarified ISAs nor used in practice.

The three extant IAPSs for which further action is proposed deal with subjects of particular concern because of recent economic circumstances (banks and financial instruments) and we agree that these require action.


We agree with the IAASB’s analysis of the factors to be considered in the development on new IAPSs but regret that such analysis did not give a better insight into the importance of the factors in determining the approach to the potential development of an IAPS. For example, although there are concerns such as ‘Possible proliferation of IAPSs’, these are not as important as whether circumstances indicate a need for new or modified requirements or application material in the ISAs themselves (in which case an IAPS would not be appropriate).

The interplay between relevant factors is important, especially in relation to the decision about the level of authority of IAPSs. A need for timely guidance may be thought to rule out normal due process (and argue for non-authoritative staff guidance) but where there is also a need for authority (whether in guidance in an IAPS, or even in ISA application material) that should prevail.


We agree that the opportunity should be taken, on the issue of the first new IAPS, to establish its status and authority in an unambiguous way.

We welcome the intention to develop a hierarchy explaining the relationship of the ISAs, IAPSs and non-authoritative staff publications.

The questions to be addressed are whether there needs to be guidance of an authoritative nature (in addition to that within ISAs themselves) and if so whether the level, or levels, of that authority are appropriate. We do not believe that there can be anything other than pragmatic answers to such questions.

A key element of this is whether the obligation on auditors is appropriate to the authority of the new IAPSs: ‘Auditors should determine whether any IAPS is relevant to the circumstances of the audit and, if so, obtain an understanding of its content.’

We do not believe that this goes far enough to reflect the authority because there is no obligation to consider the guidance for application, nor to apply it, if it is judged itself to be relevant in the circumstances of the audit. As a minimum, wording based on that in paragraph 19 of ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing  would be appropriate to further explain what is implicit in ‘obtaining an understanding of its content’.


We agree with the view expressed at the IAASB that it would be appropriate to include the auditor’s obligation in ISA 200; the Preface is not satisfactory as ISA 200 already deals with the status of the ISA application and other explanatory material.

We recognise that there are practical difficulties inhibiting amendment of ISA 200 at present, however, and we are prepared to accept the compromise proposed by the IAASB.  We caution, however, that a future problem may arise in jurisdictions where IAPSs are not available, other than in English, as auditors may not have a national language version available to them and could face difficulties in complying with an eventual ISA requirement.

We agree with the wording in the proposed amended Preface that describe the distinction between the IAASB’s authoritative pronouncements and non-authoritative material.


In this section of our response we answer the questions posed in the consultation paper.

Q1: Whether the material included in the proposed IAPS is appropriate in light of the proposed status and authority of new IAPSs.

We consider that the structure and content of proposed IAPS 1000 is appropriate.  For its authoritative status, it strikes the right balance between brevity and comprehensiveness. It is suited to a wide range of audited entities in terms of size, industry and complexity and will be of use to audit firms whatever their size.

Q2: Whether the balance of material included in the proposed IAPS is appropriate in light of its purpose of assisting a wide range of auditors on an international basis.

We refer to our answer to question 1.  Where auditors are not under an obligation to obtain an understanding of the content of the IAPS they may, nevertheless, chose to refer to it for general or educational purposes.  Additional guidance could be included in almost all areas to satisfy the needs of those who desire it, but the cumulative effect would be to turn the document into a textbook dealing with the subject matter. This would not be appropriate for authoritative guidance as it would burden auditors with too much material.

Q3: Whether the proposed form of the IAPS, including the use of two separate sections and shaded tables, enhances its readability.

We support the use of two sections (background information and audit considerations) because this enhances the overall readability of the document.  We also consider that this format, taken together with the section setting out the scope of the IAPS, makes it easier for auditors to meet their obligation to determine whether the IAPS is relevant to the circumstances of the audit.  Nevertheless, more could be done to assist auditors to determine that the IAPS is not relevant (if that is the case) and hence further study of it is not necessary, as this will be the most common position for audits globally.  For example, unfamiliar terms (such as ‘leveraged finance commitments’ in paragraph 8) should be properly explained.

We do not support the use of shading as it introduces uncertainty about the status of text.  Although the explanatory memorandum states that shading indicates that material is ‘background’ the IAPS is itself silent on this distinction (although table 2 identifies certain of its material as ‘background’). As a practical point, the use of shading of text is not conducive to photocopying or scanning, neither does such a format survive ‘cut and paste’ copying in simple computer file format.  If shading is used, it should not be the only means by which the status of text is identified (appropriate headings could be used) nor should it be too dark.

Q4: Whether respondents believe an effective date should be established for the proposed IAPS and, if so, what would be an appropriate date would be.

If it were just guidance then it could be brought in as soon as possible.  However, as authoritative guidance it cannot be, as auditors have an obligation (as proposed) to determine whether it is ‘relevant to the circumstances of the audit and, if so, obtain an understanding of its content.’  They must be given sufficient time to prepare for that obligation, which means that sufficient time must be allowed for translation and implementation before affected audits commence.

Assuming that the IAPS is issued during 2011, we suggest that it should be first applicable no sooner than in relation to audits of periods ending in December 2014.

Other matters

The IAASB invited comments on special considerations in the audit of smaller entities and public sector entities, and in relation to use of the IAPS in a developing nation environment and translations.  We have no significant comments on such matters except as set out below.

The IAPS includes sufficient material relevant to the audit of smaller entities but more could be done to give that appropriate prominence.  The key point, that a substantive approach is generally effective, is made in paragraph 38, but that paragraph is not identified by either a heading or the use of the word ‘smaller’ (which those using a full text search to establish completeness of reference within an IAASB document will use).

We suggest that a subsection on smaller entities should be added to section II to summarise the key points.  Material elsewhere should continue in place as it remains relevant to circumstances where larger entities have few complex financial instrument transactions.