Monday 5 November 2018, ICAEW has responded to the IAASB’s consultation on the Proposed International Standard on Auditing (ISA) 315: Identifying and Assessing the Risks of Material Misstatement. ICAEW urges the IAASB to re-consider the proposals in the public interest because of major concerns with the clarity of the proposals and their scalability to a wide range of sizes and complexity of audits.
“ISA 315 is a cornerstone standard and changes to it will affect all other standards, too. Our main reservations are about the complexity and scalability of the proposals. Without further work to the standard itself, and implementation guidance, there’s a huge risk that the proposals will be interpreted inconsistently across the board. That is not in the public interest.”
What is ISA 315?
ISA 315 is an international auditing standard on risk assessments. The standard hasn’t been revised since 2003 and the revision is intended to address a number of problems, such as the definition of “significant risk”, and a lack of clarity about the nature, extent and value of work that has to be performed on internal controls. ICAEW believe the proposals need much more work if they are to change behaviour, and genuinely improve risk assessments.
ICAEW supports some of the proposals, including the introduction of a “spectrum of risk”, the updated definition of a “significant risk” and clarification regarding which controls are relevant to the audit. But ICAEW does not believe that proposals, as they stand, are scalable for the audit of smaller and less complex companies.
“If the IAASB wants to avoid the slow abandonment of ISAs for SMEs at a national level, it will need to do more to make this standard genuinely scalable for smaller entities. The belief that standard-setters don’t need to concern themselves with smaller audits is wrong and short-sighted.
“The proposals are, unfortunately, cumbersome. The level of over-engineering will inevitably create confusion and inconsistencies. We are particularly concerned that the risk assessment process will be exceptionally difficult to navigate without the relevant flowchart, regardless of the size of the audit and that of itself demonstrates the need to revisit the text as a whole. More work is needed to render the proposals more concisely”
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