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On your marks

In revising ISA 315, IAASB has set a number of hares running. Katharine Bagshaw outlines the direction of travel and some of the risk and control issues behind this.

The International Auditing and Assurance Standards Board (IAASB) is revising the International Standard on Auditing (ISA) 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment (see ISA 315 revised). This core standard underpins every audit and all auditors are well aware of at least some of the trickier issues involved when applying it, some of which predate the last revision in 2003. Aware that the IAASB has this standard on its agenda, the faculty, working closely with volunteers, produced Risk Assessment and Internal Controls – Continuing Challenges for Auditors. This report compiled three articles addressing in detail a number of these issues (this work is acknowledged by the IAASB).

The IAASB has repeatedly attempted to explain and provide guidance on the scalability of ISAs for auditing small and medium-sized entities (SMEs), but it acknowledges that issues about the extent of understanding of internal control required remain unresolved. Revising ISA 315 aside, IAASB is also considering: staff publications, project updates, or illustrations and examples to provide assistance on how ISA 315 (Revised) could be applied, in particular to address concerns by auditors of SMEs which could include, for example, guidance on using data analytics in risk assessment.

Risk assessment issues

More generally, the IAASB Task Force dealing with the project, which is in its early stages, notes that inspections by audit regulators consistently highlight risk assessment issues, including understanding internal control and assessing information technology (IT) risks. The Task Force states that there is no intention to revise the risk model, but it is looking at the relationship between inherent risk and control risk, which are often assessed together.

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