Background:
International Auditing and Assurance Standard Board (IAASB) approves narrow scope amendments to International Standard on Auditing (ISA) 700 (Forming an Opinion and Reporting on Financial Statements) and ISA 260 (Communication with Those Charged with Governance) will help operationalize recently approved changes to the International Ethics Standards Board for Accountants (IESBA), International Code of Ethics for Professional Accountants (including International Independence Standards) related to listed and public interest entities. The changes to the IESBA Code require firms to publicly disclose when the independence requirements for public interest entities have been applied in an audit of financial statements.
Proposed Revisions to ISA 700:
Paragraph 28(c) of ISA 700 (Revised) requires the auditor to identify the jurisdiction of origin of the relevant ethical requirements or refer to the IESBA Code. However, it does not require the auditor to
further specify whether differential independence requirements in the relevant ethical requirements
that are applicable only to audits of financial statements of certain entities were applied, such as
the independence requirements for PIEs in the IESBA Code.
The IAASB identified two possible approaches to amending the requirement in paragraph 28(c) of
ISA 700 (Revised) that would require public disclosure that differential independence requirements
for audits of financial statements of certain entities were applied:
The IAASB supports a conditional requirement because:
Proposed Revisions to ISA 260:
The IAASB agreed that revisions to ISA 260 may be necessary to increase transparency with Those
Charged with Governance that differential independence requirements for certain entities have
been applied. Communication of matters related to independence is already captured in ISA 260.
Accordingly, new application material has been proposed to ISA 260 to correspond with the
revisions to ISA 700.
Effective Dates:
IAASB is proposing that the amendments to ISA 700 and ISA 260 become effective for audits of
financial statements for periods beginning on or after December 15, 2024. The IAASB is of the view
that this timeframe is adequate to allow jurisdictions sufficient time for translation of the final text of
the amendments to the respective ISAs, for national adoption processes to occur, and for
practitioners to update templates and associated internal materials. The IAASB considers that a
longer effective date is unnecessary due to the limited nature of the amendments proposed and
because it would not be in the public interest to have a prolonged misalignment with the IESBA
Code in this regard.
SW Point of View:There are heightened expectations about auditor independence for audits of public interest entities. The recent changes to the IESBA Code, reinforced through the IAASB’s proposed changes to the ISAs, will enhance transparency to the public about application of independence requirements for audits of financial statements of public interest entities, this is a further sign of enhanced IAASB-IESBA coordination, a strategic commitment of both boards in our joint effort to better serve the public interest. |