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In April 2017, the International Auditing and Assurance Standards Board (IAASB) released an Exposure Draft (ED) proposing changes to ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures. The objective of ED ISA 540 is for the auditor to obtain sufficient appropriate audit evidence to evaluate whether accounting estimates and related disclosures are reasonable in the context of the applicable financial reporting framework, or are misstated. ED ISA 540 includes enhanced requirements for risk assessment procedures and the auditor’s work effort in responding to the assessed risks of material misstatement to support this evaluation. ED ISA 540 highlights that the auditor’s identification and assessment of the risks of material misstatement for accounting estimates, and the auditor’s responses to those assessed risks, are affected by complexity, the need for the use of judgment by management, and estimation uncertainty. Accordingly, these three factors are incorporated throughout ED ISA 540. ED ISA 540 also emphasises the important considerations regarding complex models, forward-looking information, and internal controls in auditing accounting estimates.
The proposed standard continues the evolution of audit to meet the challenges of an increasingly complex global economy. It was developed following extensive consultation with regulators and practitioners, including those who audit small, medium, and large businesses.
The proposed standard:
- enhances requirements for risk assessment procedures to include specific factors related to accounting estimates, namely complexity, judgement, and estimation uncertainty;
- sets a more detailed expectation for the auditor’s response to identified risks, including augmenting the auditor’s application of professional scepticism; and
- is scalable regardless of the size or sector of the business or audit firm.
The ED also includes conforming amendments to ISA 260 (Revised) Communication with Those Charged with Governance, ISA 500 Audit Evidence, and ISA 580 Written Representations.
ISCA takes a leading role in advocating the views and proposals of the audit community in Singapore. ISCA would hence like to seek views from key stakeholders in Singapore on the above proposal.
ISCA requires all comments to be submitted to auditquality@isca.org.sg by 7 July 2017.
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