IAASB starts to tackle auditing disclosures

22 May 2014

The Board looks to update standards to keep up with the changing nature of disclosures

The International Auditing and Assurance Standards Board has released an exposure draft of proposed changes to International Auditing Standards that seeks to enhance the focus of auditors on disclosures. The draft encourages paying attention to disclosures earlier during the audit process, including those derived from information outside the normal accounting system.

The draft does not propose a new ISA, instead suggesting changes to a number of ISAs. The Board’s reasoning is, in part, that an integrated view on disclosures should be taken throughout the course of the financial statement audit.

Headline proposals include:

  • Clarifying that where the term ‘financial statements’ is used in the ISAs; this includes all disclosures subject to audit
  • Improvements to the risk assessment process around disclosures, responding to concerns that this was not being considered adequately – particularly in the case of qualitative (as opposed to purely quantitative) information
  • Updating application material in a number of ISAs to ensure that disclosures are considered earlier in the planning of the financial statement audit
  • Clarifying the guidance around accumulating and evaluating misstatements in disclosures, both quantitative and qualitative
  • Elaborating on the auditor’s responsibility to form an opinion on whether the presentation of the financial statements is fair and sufficiently entity-specific

The IAASB has been clear that it cannot solve all of the issues related to disclosures on its own. It has called for greater collaboration between standard setters, regulators, users and preparers to progress discussion on important aspects and has worked with the International Accounting Standards Board in its work on disclosure frameworks and materiality.

“The IAASB’s Exposure Draft is a useful step forward in response to the growing shift in importance of disclosures in corporate reporting,” said Diana Hillier, Assurance partner at PwC. “It puts disclosures front of mind in the audit.

“It’s not the end of the story, but we agree that issues such as the risk of excessive and immaterial disclosures obscuring understanding need to be tackled by accounting and auditing standard setters working together.”

The IAASB has invited comment by 11 September 2014.