Addressing Disclosures in the Audit of Financial Statements and its Conforming Amendments

ISCA today issues the 10 revised Singapore Standards on Auditing (SSAs) and conforming amendments relating to Addressing Disclosures in the Audit of Financial Statements, which is based on the revised International Standards on Auditing (ISAs) on Addressing Disclosures in the Audit of Financial Statements issued by the International Auditing and Assurance Standards Board (IAASB). 

Financial reporting continues to evolve to meet the changing needs of users of financial statements. Most significantly, the increasing and widespread use of fair values and other estimates, often involving complex and judgemental measurements, has resulted in financial reporting requirements and practices requiring more detailed disclosures to provide more useful decision-making information. Increasingly, such disclosures are obtained from sources outside the general and subsidiary ledgers and are often qualitative as well as quantitative in nature. 

The objectives of the changes are as follows: 

1. Focus auditor’s attention on disclosures throughout the audit process;
2. Enhance the requirements to drive changes in the auditor’s approach and improve consistency in practice, in particular qualitative disclosures; and
3. Clarify the auditor’s work effort by (1) providing additional guidance in the application material to assist auditors in better applying the requirements, and (2) drawing specific attention to evolving types of disclosures and listing possible audit procedures. 

Key revisions made to the standards include new and enhanced application materials developed for auditors to: 

1. Consider the risk of material misstatement at the assertion level for disclosures, including whether there is intentional misstatement of disclosures that may constitute fraud e.g. management may attempt to present disclosures in a manner that may obscure a proper understanding of the matters disclosed;
   
   
2. Consider disclosures earlier in the audit process so that auditors give appropriate attention and allocate adequate time for addressing some of the challenges related to disclosures.
   i)          Encourage management to provide information for disclosures.
   ii)         Determine the effects on the audit of significant new or revised disclosures arising from changes within the applicable financial reporting framework or in the entity’s environment, financial condition or activities e.g. need for the involvement of an auditor’s expert to assist with audit procedures related to particular disclosures.
   iii)        Communicate with those charged with governance on the planned audit approach.
   
   
3. Pay attention to information in disclosures obtained from outside the general and subsidiary ledgers by understanding the information system, including related business processes relevant to financial reporting;
   
   
4. Consider materiality for qualitative disclosures and that misstatements in disclosures need to be accumulated and evaluated;
   
   
5. Strengthen procedures around the reconciliation of the financial statements, including disclosures, with the underlying accounting records, regardless of where the information came from; and
   
   
6. Strengthen procedures when evaluating that the overall presentation of the financial statements is in accordance with a fair presentation framework such as the classification and description of financial information, the underlying transactions events and conditions and the presentation, structure and content of the financial statements. 

The revisions to the standards encompassed changes to ten SSAs and conforming amendments to five other SSAs as follows: 

1. SSA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Singapore Standards on Auditing
2. SSA 210, Agreeing the Terms of Audit Engagements
3. SSA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
4. SSA 260 (Revised), Communication with Those Charged with Governance
5. SSA 300, Planning an Audit of Financial Statements
6. SSA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
7. SSA 320, Materiality in Planning and Performing an Audit
8. SSA 330, The Auditor’s Responses to Assessed Risks
9. SSA 450, Evaluation of Misstatements Identified during the Audit
10. SSA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
    

Conforming amendments 

1. SSA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
2. SSA 580, Written Representations
3. SSA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report
4. SSA 800, Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks
5. SSA 805, Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement
   

Effective Date 

Amendments relating to Addressing Disclosures in the Audit of Financial Statements are effective for audits of financial statements for periods ending on or after 15 December 2016, in line with the effective date for the new and revised auditor reporting standards.