Countless entities around the globe—especially small- and medium-sized entities (SMEs)—look to professional accountants in public practice to assist in the preparation and presentation of their financial information. Recognizing the important role practitioners play in providing accounting and financial reporting expertise to entities in support of high-quality financial reporting, the IAASB today released International Standard on Related Services (ISRS) 4410 (Revised), Compilation Engagements, addressing such service engagements. 

“This is an important standard in the many jurisdictions where compilation engagements are commonplace, but also in jurisdictions where it is a relatively new service. This enhanced standard contributes to quality in these important engagements and ensures clear communications to users,” stated Prof. Arnold Schilder, IAASB Chairman. “While the standard is applicable to entities of all sizes and for all forms of historical financial information, the needs of SMEs, users of their financial information, and those who provide compilation services were key focus areas in our deliberations.”

ISRS 4410 (Revised) clarifies the practitioner’s role and responsibilities in a compilation engagement and matters that need to be considered when accepting such engagements, and emphasizes the importance of quality control. It also expands the traditional compilation engagement report to make clear to users the practitioner’s contribution to the compiled financial information presented by management, and the key features of a compilation engagement.

The revised standard is effective for compilation engagement reports dated on or after July 1, 2013.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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The staff of the International Auditing and Assurance Standards Board (IAASB) today released Professional Skepticism in an Audit of Financial Statements, a new question-and-answer (Q&A) publication that re-emphasizes to auditors the importance of an attitude of professional skepticism when performing their role.

“The IAASB’s International Standards on Auditing (ISAs) explicitly recognize the fundamental importance of professional skepticism,” states Prof. Arnold Schilder, IAASB Chairman. “Nevertheless, adopting and applying a skeptical mindset is ultimately a personal and professional responsibility to be embraced by every auditor. It is an integral part of the auditor’s skill set, is closely interrelated to the fundamental concepts of auditor independence and professional judgment, and contributes to audit quality. The auditor’s education, training, and experience are therefore critical. Audit firms themselves have an important role to play in cultivating a skeptical mindset in auditors, as do regulators, oversight bodies, and those charged with governance.”

“The public expects high-quality audits. While what that means depends on one’s perspective, a defining feature is the exercise of professional judgment together with a ‘healthy dose’ of professional skepticism by the auditor. A skeptical attitude enhances the auditor’s ability to identify and respond to conditions that may indicate possible misstatement due to error or fraud and critically assess audit evidence,” notes James Gunn, IAASB Technical Director.

The Q&A publication focuses on the requirements and application material in the ISAs and the IAASB’s quality control standard that are of particular relevance to the proper understanding and application of professional skepticism during an audit of financial statements. In addition, answers are provided regarding what audit firms and auditors can do to enhance awareness of the importance of professional skepticism, identify aspects of an audit where professional skepticism may be particularly important, and how professional skepticism can be evidenced.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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This IAASB Staff Q&A publication focuses on the requirements and application material in the International Standards on Auditing (ISAs) and the IAASB’s quality control standard that are of particular relevance to the proper understanding and application of professional skepticism during an audit of financial statements.

The International Auditing and Assurance Standards Board (IAASB) today released a Feedback Statement on the responses to its January 2011 Discussion Paper, The Evolving Nature of Financial Reporting: Disclosure and Its Audit Implications. The Discussion Paper solicited views and perspectives of different stakeholder groups on the challenges arising as financial reporting continues to evolve to meet the changing needs of users. Respondents from across the world, including regulators and oversight authorities, users and preparers, audit firms, and professional bodies provided thoughtful and informative input on issues around disclosures. The Feedback Statement provides an overview of the key messages heard and provides thoughts and recommendations on what can be done to address them.

“Disclosures have always been a critical component of financial reporting, but have become more so today as reporting increasingly incorporates fair value information, estimates involving judgment and complex measurements, and narrative disclosures of some of the risks and characteristics of companies and groups. Accordingly, investors and others look to disclosures for vital insights when making investment decisions,” said Prof. Arnold Schilder, Chairman of the IAASB. “This underscores the importance of the IAASB’s initiative to gain further knowledge and understanding of the issues and share what it has heard to stimulate further thinking and exploration in this area.”

The Feedback Statement presents a summary of the range of views on some of the more significant challenges faced by participants across the entire financial reporting supply chain, including the impact of trends in financial reporting, applying materiality to disclosures, evaluating misstatements generated by disclosures, the availability of audit evidence to support disclosures, and work effort. To address some of the issues identified respondents have called for more auditing guidance in certain identified areas. However, the majority of the respondents were of the view that some of the more important issues could not be addressed by the IAASB on its own, but would require international collaboration and cooperation, particularly with both the accounting standard setters—including the International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB)—and regulators.

“Financial information that is reliable, understandable, and relevant is essential, as is the assurance on that information that auditors provide. We wholeheartedly agree with the respondents regarding the need for international collaboration and cooperation among standard setters; securities, audit, and prudential regulators; and other stakeholders. We must work together to develop effective responses to the issues being faced today,” notes James Gunn, IAASB Technical Director.  “Like others, the IAASB has a role in enhancing the public’s confidence in disclosures as a priority—recognizing that individual initiatives must be towards finding a collective solution.”

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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This Feedback Statement provides an overview of the key messages from the responses to the IAASB’s January 2011 Discussion Paper, The Evolving Nature of Financial Reporting: Disclosure and Its Audit Implications.

(New York, December 28, 2011)—The global economy continues to experience difficult conditions as the effects of the financial crisis—for example, on corporate cash flows and access to credit—persist. Volatility in capital markets, and issues including measurement and disclosure of exposures to sovereign debt of distressed countries, continue to create uncertainty. The impact of these issues and uncertainty has wide-ranging financial reporting implications that often extend beyond national borders.

These and other current economic conditions present unique challenges for management of entities, those charged with governance, and auditors in meeting their responsibilities, including assessing an entity’s ability to continue as a going concern and making relevant disclosures in the financial statements and, as appropriate, the auditor’s report.

In light of the current environment, the International Auditing and Assurance Standards Board (IAASB) reminds auditors of their important responsibilities under the International Standards on Auditing (ISAs) and that the appropriateness of management’s use of the going concern assumption is a matter to be considered on every audit engagement.

Prof. Arnold Schilder, Chairman of the IAASB, commented, “Difficult economic conditions give rise to many important audit considerations, but none more important—or more difficult—than evaluating management’s assessment of an entity’s ability to continue as a going concern and determining the appropriate auditor reporting in the circumstances.”

“Auditors must remain alert throughout the audit for evidence of events or conditions that may cast significant doubt on an entity’s ability to continue as a going concern. We cannot stress enough the importance of professional skepticism and judgment in evaluating financial statement disclosures and the implications for the auditor’s report when a material uncertainty exists relating to events or conditions that, individually or collectively, may cast doubt on the entity’s ability to continue as a going concern.”

The 2009 IAASB Staff Audit Practice Alert, “Audit Considerations in Respect of Going Concern in the Current Economic Environment,” highlights matters relevant to the consideration of the going concern assumption in the preparation of financial statements. Among other matters, it addresses factors relevant to the assessment of going concern; the period of time considered in making a going concern assessment; financial statement disclosures; forming an opinion on the financial statements and the implications for the auditor’s report.

“While this Audit Practice Alert was released in context of the 2008-2009 credit crisis, many of the matters addressed in it are equally relevant today. For example, an entity may be experiencing a decline in its financial health, or may have material uncertainties arising from direct or indirect exposures to sovereign debt of distressed countries. Auditors are therefore encouraged to review the Alert and, importantly, the relevant requirements in the ISAs,” emphasized Prof. Schilder.

About the IAASB

The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC

IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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Recognizing the need for reliable information in domestic and cross-border securities offerings and other fundraising activities, the International Auditing and Assurance Standards Board (IAASB) today released new International Standard on Assurance Engagements (ISAE) 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus.

Companies seeking to access capital markets commonly include pro forma financial information in their prospectuses as a key element to enable investors and others to better assess the investment opportunities presented. Pro forma financial information included in an issuer’s prospectus illustrates the impact of a proposed acquisition, equity or debt issuance, or other transactions on the issuer’s historical financial information as if such event or transaction had occurred at an earlier selected date.

“Pro forma financial information included in prospectuses plays an important role in informing the public’s investment decisions in today’s increasingly global capital markets. Enhancing public confidence in how such financial information has been produced is therefore especially important,” said Prof. Arnold Schilder, Chairman of the IAASB. “The IAASB is confident that this new standard will help meet the public interest need for harmonized practices internationally in this area,” Prof. Schilder added.

The new ISAE 3420 provides comprehensive guidance on the nature and extent of a practitioner’s work when engaged to report on the compilation of pro forma financial information. Among other matters, it establishes minimum benchmarks for suitable criteria for the compilation of such information. It also covers related engagement acceptance and reporting considerations. ISAE 3420 is effective for assurance reports dated on or after March 31, 2013.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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