Many entities establish internal audit functions as part of their internal control, risk management, and governance structures; effective coordination and communication between the external and internal auditors can contribute positively to the external audit. Recognizing this, the International Auditing and Assurance Standards Board (IAASB) today released International Standard on Auditing (ISA) 610 (Revised), Using the Work of Internal Auditors, which addresses the external auditor’s responsibilities if using the work of an internal audit function in obtaining audit evidence.

“Internal auditing standards and practices have continued to develop, as has the relationship between external and internal auditors. Equally, the expectations on the external auditor continue to evolve, particularly with recent heightened emphasis on audit quality and accountability,” stated Prof. Arnold Schilder, IAASB chairman. “Our standards must also evolve to take account of these changes. Our revision of this standard involved extensive input from, and liaison with, the regulatory community, which we believe has helped enhance the quality of the final standard.”

The revised standard is aimed at enhancing the external auditor’s performance by providing a more robust framework for evaluating and using the work of an entity’s internal audit function. Related changes have also been made to ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, to explain how the internal audit function and its findings can usefully inform the external auditor’s risk assessments.

“The external auditor may be able to use the work of a robust internal audit function. Nevertheless, the external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the external auditor’s use of the work of the internal audit function,” notes James Gunn, IAASB technical director. “This revised ISA defines the conditions that are necessary for the external auditor to be able to use the work of internal auditors, including ensuring that the internal audit function’s work is adequate for the audit, and preventing overuse or undue use of such work.”

Both ISA 610 (Revised) and ISA 315 (Revised) are effective for audits of financial statements for periods ending on or after December 15, 2013.

Using Internal Auditors to Provide Direct Assistance
In revising ISA 610, the IAASB also agreed on requirements and guidance that specify the conditions and establish responsibilities of the external auditor if the external auditor intends to use internal auditors to provide direct assistance during the audit.

The IAASB has engaged closely with the International Ethics Standards Board for Accountants (IESBA) in relation to this matter. While the IAASB has concluded its deliberations on the requirements addressing direct assistance, it intends to incorporate such material in ISA 610 (Revised) only after the IESBA concludes its deliberations on its February 2012 exposure draft of proposed changes to the definition of “engagement team” in the Code of Ethics for Professional Accountants (IESBA Code). The IESBA exposure draft proposes to resolve a perceived inconsistency between the ISAs and the IESBA Code regarding the ability of external auditors to use internal auditors to provide direct assistance.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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Article IFAC's paper calling for enhanced financial management transparency and accountability in the public sector, especially in the midst of the sovereign debt crisis.

Ian Ball, CEO of IFAC, calls on accountants to pressure governments to be transparent about their accounting and management of taxpayers’ money.

The staff of the International Auditing and Assurance Standards Board (IAASB) today released Professional Skepticism in an Audit of Financial Statements, a new question-and-answer (Q&A) publication that re-emphasizes to auditors the importance of an attitude of professional skepticism when performing their role.

“The IAASB’s International Standards on Auditing (ISAs) explicitly recognize the fundamental importance of professional skepticism,” states Prof. Arnold Schilder, IAASB Chairman. “Nevertheless, adopting and applying a skeptical mindset is ultimately a personal and professional responsibility to be embraced by every auditor. It is an integral part of the auditor’s skill set, is closely interrelated to the fundamental concepts of auditor independence and professional judgment, and contributes to audit quality. The auditor’s education, training, and experience are therefore critical. Audit firms themselves have an important role to play in cultivating a skeptical mindset in auditors, as do regulators, oversight bodies, and those charged with governance.”

“The public expects high-quality audits. While what that means depends on one’s perspective, a defining feature is the exercise of professional judgment together with a ‘healthy dose’ of professional skepticism by the auditor. A skeptical attitude enhances the auditor’s ability to identify and respond to conditions that may indicate possible misstatement due to error or fraud and critically assess audit evidence,” notes James Gunn, IAASB Technical Director.

The Q&A publication focuses on the requirements and application material in the ISAs and the IAASB’s quality control standard that are of particular relevance to the proper understanding and application of professional skepticism during an audit of financial statements. In addition, answers are provided regarding what audit firms and auditors can do to enhance awareness of the importance of professional skepticism, identify aspects of an audit where professional skepticism may be particularly important, and how professional skepticism can be evidenced.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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The International Ethics Standards Board for Accountants (IESBA) today released for public exposure proposed changes to the definition of “engagement team” in the IESBA Code of Ethics for Professional Accountants (the Code).

The proposals address comments received by the International Auditing and Assurance Standards Board on its Exposure Draft (ED) on ISA 610, Using the Work of Internal Auditors. A number of respondents to that ED pointed out the perceived inconsistency between the independence requirements for external auditors under the Code and the use of internal auditors to perform external audit procedures.

“Through this Exposure Draft, the IESBA seeks to ascertain whether the proposed changes to the definition adequately clarify the term "engagement team" and eliminate the perception that the Code and the ISA are in conflict. The IESBA believes this will contribute to more consistent application of the Code, which is critical to our mission to support the global adoption and implementation of the Code of Ethics,” said Ken Dakdduk, chair of the IESBA.

How to comment
The IESBA invites all stakeholders to comment on its proposals in the Exposure Draft, Proposed Change to the Definition of “Engagement Team.” To submit a comment, visit the IESBA website at www.ifac.org/ethics. Comments on the Exposure Draft are requested by May 31, 2012.

About the IESBA
The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ifac.org/ethics for more information.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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This IAASB Staff Q&A publication focuses on the requirements and application material in the International Standards on Auditing (ISAs) and the IAASB’s quality control standard that are of particular relevance to the proper understanding and application of professional skepticism during an audit of financial statements.

The International Ethics Standards Board for Accountants (IESBA) is proposing changes to its Code of Ethics for Professional Accountants (the IESBA Code) to provide additional guidance to professional accountants in business and in public practice concerning conflicts of interest, and to make revisions to provide more comprehensive guidance in identifying, evaluating, and managing conflicts of interest.

The IESBA approved this project in October 2009.  It examined two sections of the IESBA Code that address conflicts—Section 220, for professional accountants in public practice, and Section 310, for professional accountants in business. In the IESBA’s view, the approach to be taken by a professional accountant in public practice and a professional accountant in business should be broadly similar.  The proposal recognizes, however, that conflicts of interest will typically arise in different circumstances for accountants in public practice, particularly because a conflict of interest may arise from professional services provided by other members of the accountant's firm.

Ken Dakdduk, IESBA Chair, notes, “The proposed changes will provide more specific requirements and guidance for a professional accountant in applying the conceptual framework when identifying, evaluating, and managing conflicts of interest. This includes a clearer description of what is meant under the IESBA Code by the term ‘conflict of interest.’ The changes should assist professional accountants in early identification of a potential conflict of interest, and prompt accountants to evaluate their ability to be objective in that situation and meet the other fundamental principles in the IESBA Code.  From the perspective of the public, timely identification of potential conflicts of interest can provide affected parties with more time to engage an alternative service provider.”

The proposed guidance also calls for professional accountants in business to be alert to interests and relationships that a reasonable and informed third party would be likely to conclude might compromise compliance with the fundamental principles. Further, the IESBA proposal would strengthen the guidance on threats created by compensation and incentive arrangements.

How to comment
The IESBA invites all stakeholders to comment on its proposals. To access the exposure draft and submit a comment, visit the IESBA website at www.ethicsboard.org. Comments on the exposure draft Proposed Changes to the Code of Ethics for Professional Accountants Addressing Conflicts of Interest are requested by March 31, 2012.

About the IESBA
The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ethicsboard.org for more information.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

This an update on the initiative the IAESB has undertaken to revise and redraft its suite of eight International Education Standards (IESs).