Question

Compare and contrast the proposed standard IAASB 701 with SAS 115. Discuss what this new standard would mean from the auditor’s perspective. Research and prepare an audit plan addressing all required components that highlights the information required to be presented in the new standard. (How would the auditor determine the information that needs to be disclosed?). Finally, please discuss whether or not adopting the new standard will be beneficial.

Answer 1

Solution

This is the IAASB 701 standards deal with the auditor’s responsibility to communicate key audit matters in the auditor’s report. Communicating key audit matters provides additional information to users of the financial statements to assist them in understanding those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Communicating key audit matters may also assist users of the financial statements in understanding the entity and areas of significant management judgment in the audited financial statements; as such matters are areas of focus in performing the audit. The communication of key audit matters in the auditor’s report may also provide users of the financial statements a basis to further engage with management and those charged with governance about certain matters relating to the entity and the audited financial statements.

The Statement of Auditing Standards (SAS 115) provides guidance to external auditors on how they should communicate internal control related matters identified in their audit of an organization's financial statements.

The standard does 3 things:

• It defines three categories of deficiencies that may be identified during the external audit of the financial statements:
  • Control deficiencies
  • Significant deficiencies
  • Material weaknesses
• It provides guidance on evaluating the severity of the deficiencies identified.
• It requires the auditor to communicate in writing to management and those charged with governance any significant deficiencies or material weaknesses that were identified.

This paper discusses the IASB's process of developing accounting standards for adoption by listed companies within the European Union. Issues addressed include the structure of the IASB, its role as a global standard setter and its program me. Particular attention is given to two topics that are both controversial and important, accounting for financial instruments and reporting financial performance.