The International Audit Practices Committee (IAPC) held its first meeting of the year in Antwerp, Belgium in early March. During the week, the Committee's discussions focused on the most important agenda items, which included the following topic areas:
Comparatives
The Committee approved the issuance of a new International Standard on Auditing (ISA) on Comparatives. This new ISA establishes standards and provides guidance on the auditor¹s responsibilities regarding comparative financial information under two different financial reporting frameworks used around the world.
One framework, designated "Corresponding Figures" relates to countries where amounts and other disclosures for the preceding period are included as part of the current period¹s financial statements, i.e., they are an integral part of the current period's statements intended to be read only in relationship to the current period figures. The other framework, designated "Comparative Financial Statements" relates to countries where amounts and other disclosures of the preceding period are included for comparison purposes, but do not form part of the current period's financial statements.
The project on Comparatives has been long and complex, as the document had to be developed to establish clear and concise guidance for both the Corresponding Figures and Comparative Financial Statement frameworks. This ISA will be distributed to member bodies of the International Federation of Accountants (IFAC) as soon as possible, and it will become effective in July 1997 with earlier application permitted.
Prospectives
The Committee continued to progress in its work on preparing a revised ISA when reporting on prospective financial information. The present ISA provides for negative assurance on assumptions and for positive assurance on the compilation of the financial information. The IAPC is reconsidering the reporting aspects of this type of engagement: how to convey the appropriate level of assurance on both management's assumptions and on the preparation of the information, and whether to refer to the various applicable accounting frameworks, if such a framework exists. The structure and wording of the report is also being reconsidered.
Communications
This is a new topic on IAPC's agenda. There is currently an International Auditing Practice Statement on "Communications with Management," but the Committee wants to turn it into an ISA and to address issues on communications with management and boards of directors. The discussion focused on issues such as the types of matters to communicate and the lines and responsibilities of communication. The IAPC will draft an ISA that focuses on providing guidance on these communication responsibilities in audits or financial statements. It will also include a statement that the auditor, in performing an audit in accordance with the ISAs, should also consider any local auditing requirements on communications with management and boards of directors. The IAPC will also consider whether to address local regulatory requirements on communications by the auditor to others outside the entity.
Assurance Services
The IAPC is presently preparing a draft of a high level assurance document. Definitions of the generic components of an assurance engagement have been developed, as well as the reporting process to take account of the nature and form of assurance given. IAPC approved the direction and intended structure of the document and asked the Subcommittee handling this project to develop guidance around each of the definitions discussed, and bring this to the next IAPC meeting together with possible models.
The Auditor and the Environment
In 1995, the IAPC issued a Discussion Memorandum on "The Environment and the Auditor." The Discussion Memorandum covered a number of different topics relating to, for example, the matters an auditor should consider in an audit, environmental internal control systems, and performance auditing of environmental systems. The comments received were extensive and supportive of the specific topics presented in the Memorandum. However, the respondents suggested a "go slow" approach suggesting that the more complex topics, such as environmental performance review, be addressed at a later date and to focus initially on the guidance needed by auditors.
Following the Subcommittee's review of the comments received, the IAPC agreed to develop an International Auditing Practice Statement (IAPS) on environmental matters in an audit of financial statements. An IAPS does not have the authority of an ISA and is designed to provide more detailed guidance in applying ISAs. Thus, the IAPS will provide guidance on how specific ISAs are applied in considering environmental matters in an audit of financial statements. Further guidance on environmental management systems and environmental performance review may be developed at a later stage.
External Confirmations
This project is to develop an overall ISA on external confirmations. Practitioners in different countries are facing many problems in obtaining and using confirmations. The Subcommittee will develop a document that will provide guidance on various types of confirmations. In particular, it will review the existing material on debtors' confirmations and will review audit issues relating to these confirmations, such as the reliability of audit evidence from confirmations, alternative procedures, the application of the risk model and similar issues.
Small Audits
There is an existing practice statement in the ISAs on Small Audits. It is outdated and needs to be revised. The Subcommittee handling this project initially proposed to develop a "stand alone" document to look at the impact of each ISA on small companies and give guidance on how these should be applied. IAPC expressed some concerns that a stand alone document would lead to a casual application of the ISAs, and may become outdated. While a stand alone document may be the form for initial release, the IAPC will also consider how the guidance for each of the ISAs discussed could be added as a separate section at the end of each ISA in the IFAC Handbook containing the ISAs.
IAPC Conference
The Committee continued to develop the program for the international auditing conference to be held in San Francisco from July 1416, 1996. The conference will focus on audit innovation and the changing environment. The Committee hopes that standard setters, practitioners, educators, regulators and users will find the conference of great interest. Two plenary sessions will be held. The first session will be on the Audit Agenda for 2000 and Beyond and on Corporate Governance, and the second plenary session will be on Assurance Services. Break out topics will include Prospective Financial Statements, Fraud in the International Arena and the Auditor and the Environment. (Interested parties should contact the IFAC Secretariat, Mr. Kenneth Gilmour, at the International Federation of Accountants, 114 West 47th Street, Suite 2410, New York, NY 10036 for a conference flier.)
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Auditor's Report, Summer, 1996