Modernisation of Financial Estimate Audits in Support of Audit Quality
The International Auditing and Assurance Standards Board (IAASB) is proposing significant changes in how auditors evaluate accounting estimates and related disclosures in its revision to ISA 540, Auditing Accounting Estimates and Related Disclosures.
The changes will require auditors to sharpen their focus on risks of material misstatements arising from accounting estimates and to address those risks with more granular audit requirements.
The proposed standard—developed following extensive consultation with regulators and practitioners, including those who audit small, medium, and large entities—continues the evolution of audit to meet the challenges of an increasingly complex global economy.
Proposed ISA 540 (Revised):
- 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.
Your views on the international proposals are important, as the finalised proposals will affect auditors in New Zealand. Your views will help inform us when developing our response to the IAASB, and when considering whether there are any compelling reasons for the proposals to be modified for application in New Zealand.
If we have not identified any compelling reasons for modifications to the IAASB’s proposed changes to ISA 540, and the IAASB finalises the exposure draft as is, we will issue an equivalent ISA (NZ) 540 (Revised), with minimal changes only to reflect references, language and grammatical conventions used in New Zealand.
This IAASB exposure draft is therefore your opportunity to comment on ISA (NZ) 540 (Revised) that will be issued in New Zealand.
However, if we do identify compelling reasons for amendments to the international proposals, we will issue a NZAuASB exposure draft in New Zealand and seek your comments.
Aimed specifically at those who audit accounting estimates, the NZAuASB is also holding roundtable discussions in Auckland and Wellington in relation to ISA 540 ED:
Auckland – 30 May 2017
Wellington – 1 June 2017
How to comment
You can either respond directly to the IAASB, and/or you can share your views with the NZAuASB.
Please submit your comments as follows:
- directly to the IAASB by I August 2017; and/or
- to the NZAuASB by 1 July 2017.
Address your comments to the NZAuASB:
either by post to:
The Chief Executive
External Reporting Board
PO Box 11250, Manners Street Central
or by email to firstname.lastname@example.org.
You can put your comments in an email or as an attached letter and comments can be formal or informal.
Where you make comments directly to the IAASB, we would appreciate it if you also send a copy to the NZAuASB.