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International Auditing and Assurance

Standards Board

The Clarified ISAs, Audit

Documentation, and SME AuditConsiderations

ISA Implementation Support Module

Prepared by IAASB Staff

October 2009


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Understanding an ISA Audit

The Clarified ISAs

Elements of the Clarified ISAs, SME auditconsiderations, and additional aspects of ISA 200

Audit documentation

Objective, SME audit considerations, and

additional aspects of ISA 230

Overview

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Starting point in understanding an ISA audit;

umbrella standard to all ISAs

Purpose, nature, and scope of an ISA audit

Overall objectives of auditor

To obtain reasonable assurance, and

To report in accordance with auditor findings

Failure to achieve carries reporting or withdrawal

implications

ISA 200, Overall Objectives of the Auditor,

and Conduct of an ISA Audit

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Requirements addressing auditors general

responsibilities

Concepts relevant to an audit

Scope, authority, and structure of ISAs

ISA 200, Overall Objectives of the Auditor,

and Conduct of an ISA Audit

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Clarified ISAs

Four distinct sections

Introduction; Objectives; Requirements; and

Application & Other Explanatory Material

Definitions section as well, in most cases

Together all sections comprise the Standard

Required to have understanding of entire text

to understand objective stated in an ISA and to

apply requirements properly

Elements

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Elements of Clarified ISAs

Scope of ISA

E.g., relationship to other ISAs, any specific

limitations of the applicability of the ISA, etc.

Essential contextual information

E.g., context in which the ISA is set, respective

responsibilities of auditor and others, etc.

Effective date

Early application permitted unless otherwise stated

Introduction

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Underpin ISAs principles-based approach

Set out aim of auditor and what needs to be

accomplished

Provide linkage between ISA requirements and

auditors overall objectives

Proper application of requirements expected toprovide a sufficient basis for achievement of

objectives; however, ISA requirements cannot

anticipate all circumstances

Objectives

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To be used in planning and performing theaudit to

Determine need for additional audit procedures

Evaluate whether sufficient appropriate evidence

has been obtained

To be understood in context of the overallobjectives of the auditor and having regard to

interrelationships amongst ISAs

Objectives

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If an objective in a relevant ISA cannot beachieved, evaluate whether this prevents

achievement of auditors overall objectives

Represents a significant matter requiringdocumentation

Circumstances that may give rise to failure, e.g.,

Unable to comply with a requirement(s)

Not practicable or possible to carry out additional

procedures auditor judges necessary

Objectives

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Designed to enable achievement of objectives

Compliance with ISAs claimed only when auditor

has complied with all relevant ISAs

In exceptional circumstance, departure from a

relevant requirement permitted

Where the requirement is for specific procedure andthat procedure would be ineffective

Perform alternative audit procedures to achieve aim of

the requirement

Requirements

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Integral part of the standard providing

Background information on matters addressed

Further explanation of a requirement, e.g., what itmeans or is intended to cover

Guidance for carrying out requirements, e.g.,

examples of procedures

Does not impose a requirement, but is relevant

to proper application of the requirements

Application & Other Explanatory Material

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Clarified ISAs

Structure of Clarified ISAs heavily influenced byneed to ensure applicability of ISAs to audits of

entities of all sizes, in particular SMEs

Separate section for requirements to help readabilityand clarification of conditional requirements

Requirements capable of being applied

proportionately

Additional guidance specific to SME audits

Considerations Specific to SME Audits

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SME Audit Considerations

New guidance in application material of theISAs providing considerations specific to audits

of smaller entities

Typical qualitative characteristics of SMEs describedin ISA 200

Guidance developed primarily with unlisted entities in

mind; some considerations, however, may be helpfulin audits of smaller listed entities

Considerations do not limit responsibility to comply

with ISA requirements

Considerations Specific to SME Audits

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ISAs designed to be able to be appliedproportionately with size/complexity of an entity

Proportionality modification of requirements

Not every audit to be performed the same way

Audit approaches may vary with circumstances

(simpler/more complex)

Professional judgment needed regarding audit

procedures to meet the ISA requirements and

gather audit evidence

Proportionality of Application of ISAs

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Demonstrated in requirements, e.g.,

ISA 260.13, where management = those charged with

governance

ISA 315.17, absence of formal risk assessment

process

ISA 540.13, choice of responses to assessed risks

Demonstrated in application material, e.g.,

guidance on aspects of the audit which vary with

size, complexity, and nature of an entity

Proportionality of Application of ISAs

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Basic obligation in the ISAs is to comply with allISAs relevant to the audit

However, not all ISAs may be relevant in an SME

audit, e.g.,

ISA 402, if SME does not use a service organization

ISA 600, if SME audit is not a group audit

ISA 610, if SME has no internal audit function

Application in an SME Context

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Even if an ISA is relevant, not all itsrequirements may be relevant

Conditional requirements need not be applied if

conditions do not exist

Examples

Engagement team discussion (ISA 315.10)

Determining whether material uncertainty exists in

context of going concern (ISA 570.16)

Application in an SME Context

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Clarified ISAs

Concepts relevant to an ISA audit

Amplification of existing guidance, e.g., on

sufficiency and appropriateness of audit

evidence, inherent limitations of an audit, etc.

No change to definition of reasonable assurance

and underlying audit risk model

Professional judgment

Professional skepticism

Additional Features of ISA 200

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Essential to proper conduct of an audit

New definition and requirement

Better articulates IAASBs expectationsregarding exercise of professional judgment in an

audit

Helps stress auditors professional responsibilityfor the exercise of judgment in a sound,

consistent, and justifiable manner

Professional Judgment

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New guidance

Addresses how judgment may be evaluated

Reminds auditor of need to consult on difficult orcontentious matters and for significant judgments

to be evidenced

Makes clear that judgment is not to be used as the

justification for decisions that are not supported

by the facts and circumstances or sufficient

appropriate audit evidence

Professional Judgment

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Audit Documentation

Objective

Sufficient appropriate record of the basis for

auditors report

Evidence that audit planned and performed in

accordance with ISAs

Benefits, e.g.,Facilitates supervision and review, evaluation of

evidence obtained and conclusions reached,

internal and external inspections, etc.

ISA 230, Audit Documentation

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Audit Documentation

Sufficient to enable an experienced auditor,having no previous connection with the audit, to

understand

Nature, timing, and extent of the audit procedures

Results of audit procedures , and the audit evidence

obtained

Significant matters arising during the audit, theconclusions reached thereon, and significant

professional judgments made in reaching those

conclusions

Benchmark

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SME A di C id i


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Appropriate documentation need not be

burdensome

Application designed to be proportionate,efficient, and effective

For SMEs, likely simple in form and relatively brief

ISAs explicitly encourage exercise of professional

judgment in determining form and extent of

documentation that make most sense

Proportionate Documentation in an SME

Context

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SME A di C id i


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Focus is on meaningful documentation

it is neither necessary nor practicable for the

auditor to document every matter considered, or

professional judgment made, in an audit.

it is unnecessary for the auditor to documentseparately compliance with matters for which

compliance is demonstrated by documents

included within the audit file. (ISA 230.A7)

Many illustrations of how documentation can be

done in efficient and effective manner (see ISAs

230, 300, 315, etc.) 24

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Audit Documentation

Documentation of items/matters tested, whoperformed the audit work, reviewer, and dates

Documentation of discussions of significant

matters with management, those charged withgovernance, and others

Documentation of departure from a relevant

requirement

How alternative procedures achieve aim of the

requirement and reasons for departure

Additional features of ISA 230

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Audit Documentation

Requirements addressing matters arising afterdate of auditors report and assembly of final

audit file

Assembly of final audit file expected


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Note

This set of support slides does not amend or override

the ISAs, the texts of which alone are authoritative.

Reading the slides is not a substitute for reading the

ISAs. The slides are not meant to be exhaustive and

reference to the ISAs themselves should always be

made. In conducting an audit in accordance with

ISAs, the auditor is required to comply with all theISAs that are relevant to the engagement.

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Copyright October 2009 by the International Federation of Accountants

(IFAC). All rights reserved. Permission is granted to make copies of this work

provided that such copies are for use in academic classrooms or for personal use

and are not sold or disseminated and provided that each copy bears the

following credit line: Copyright October 2009 by the International

Federation of Accountants (IFAC). All rights reserved. Used with permission of

IFAC. [email protected] for permission to reproduce, store, or

transmit this work. Otherwise, written permission from IFAC is required to

reproduce, store, or transmit, or to make other similar uses of, this work, except

as permitted by law. Contact [email protected].

International Federationof Accountants

ISBN: 978-1-60815-042-7

www.ifac.org
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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