The International Financial Reporting Standards (IFRS) are a set of international accounting standards created by the International Accounting Standards Board (IASB). These standards are rapidly becoming the global norm for financial reporting in public entities. Recently, a study led by the International Federation of Accountants (IFA) cited that a convergence to IFRS was crucial for the global economic growth and development. Another key driver for the convergence has been the need for reliability in fiscal reporting and accounting (Tapscott, Eccles & Krzus, 2013). With this backdrop, this paper highlights efforts the ASB is making to clarify the auditing standards. It also looks at the differences between ISA's and U.S. Auditing Standards. Finally, the paper reveals how the efforts of the ASB and the IAAB are similar to the FASB and the IASB.
Efforts the Auditing Standards Board making to clarify auditing standards
This is the time when auditors get ready for the shift of the clarified standards of auditing, which will be effective soon. For instance, new requirements may include discussion with customers affecting interim testing and fieldwork. Hence, a number of these standards are likely to require changes to the audit procedures. If a company produces and preserves its own audit strategies, it must be ready for the transformation. If a company depends on the commercially offered audit strategies, it must understand the definite requirements and standards to make sure it uses its technique to finish audits as efficiently and effectively as possible while adhering to the standards.
The ASB's plan seeks to modify and rectify all current auditing (AU) segments of AICPA Expert Standards. In some situations, personal AU segments are being clarified "one for one" into personal clarified specifications. In other situations, current AU segments are undergoing regrouping and re-clarification into one or more recently numbered specifications. Consequently, almost all subjects currently associated with certain current AU segment numbers are subject to re-title and allocation of AU segment numbers that differ from the ones in the current standards (Tapscott, Eccles & Krzus, 2013).
ASB plans to release most of the clarified standards by means of one new standard on auditing statement (SAS), which has been codified in "AU section" format -- just as the current specifications have been codified. However, SAS numbering will not begin with SAS number 1. Instead, in the clarified standards, the SAS number will begin with the next successive number, available when the completed clarified specifications are ready to be released. Various SASs numbers, notably 117 through 121 have already been released in a clarified structure. As such, while other outstanding exposure drafts could be released before being adopted by ASB, the new SAS, which has been codified, is predicted to be numbered 122 (Narayan, 2012).
The important change introduced in the clarified standards is the position of the 10 primary guidelines typically known as the Generally Approved Audits Standards (GAAS) included in present AU provisions. Typically, auditors have categorized these standards into three sets: fieldwork, general and reporting. Through efforts to clarify auditing standards, the specifications involved in the 10 specifications have been integrated into various clarified specifications. To offer a structure that is beneficial in understanding and describing an audit, the "clarified principles" will be based on the 10 specifications (Kimmel, Weygandt & Kieso, 2011). Similarly, they will still be applicable and will not carry any power, but rather offer a structure that is beneficial in understanding and describing an audit.
Five key differences between ISA's and U.S. Auditing Standards
There are five key areas where variations exist between ISA's and U.S. Auditing Standards. These important variations include documentation of the process of auditing, going-concern considerations, evaluating, and reporting on internal control against financial reporting, risk evaluation and response to the identified risks, and the use of another auditor for part of an audit. In this section, much of the conversation of the variations between ISA's and U.S. Auditing Standards is attracted from a research released by the European Commission (EC).
Documentation of the process of auditing: Conceptually, the documentation specifications are under U.S. auditing standards and ISAs differ. U.S. auditing standards are relatively more prescriptive than ISAs, which are recognized as depending more on the professional judgment of the auditor. An example in the research prepared for the EC notices that U.S. auditing standards need that an "engagement finalization memo" to be ready. This is not needed under the international auditing standards (Narayan, 2012).
Retention times of auditing work documents also vary between the two sets of standards. The U.S. auditing standards require that audit work documents be maintained for a period of at least five years. On the other hand, ISA requires a retention period of at least seven years. ISA 230 as an Audit Certification requires audit companies "to set up guidelines and techniques for the retention of engagement documentation." The retention period for audit events normally is no lesser than five years from the time frame of the auditor's report, or, if later, the periods of the group auditor's report (Kimmel, Weygandt & Kieso, 2011).
Going-concern considerations: When considering whether an enterprise can continue as a going-concern, the U.S. audit standards determine the future as the 12 months before the financial period being audited. When evaluating going-concern considerations under ISAs, the future is at least, but not restricted to, 12 months. At the time of this writing, GAAS was considering launching guidance on the going-concern- issue that would, among other things, increase management's liability for planning financial reports as a growing issue. It will consider information for at least, but not restricted to, 12 months from the end of the reporting period (Tapscott, Eccles & Krzus, 2013).
Internal management over financial reporting: When the U.S. government passed SOX, it needed that management of U.S. public enterprises evaluate and report on internal management against financial reporting. Management states its declaration about the potency of its controls over financial reporting in a review that comes with the audit report. The U.S. auditing standard requires auditors of public firms to execute an evaluation of an entity's internal management over financial reporting. This is incorporated with an audit of its fiscal reports (Narayan, 2012). In addition to providing an opinion on the fairness of the fiscal reports, auditors of U.S. public enterprises must also give their view on the potency of the entity's internal management against financial reporting.
While this is not a requirement, virtually all public enterprises evaluate internal control based on the requirements established by the commission of sponsoring organizations (COSO). The audit requirements from the ASB and ISAs do not require an integrated audit conveying an opinion on the potency of the customer's internal management against financial reporting. Auditors following U.S. audit requirements must understand the internal controls of the enterprise being audited in order to plan and execute the audit, including determining the nature, timing, and extent of purposeful assessments to be performed. International audit requirements need an auditor to test the interior controls of the organization being audited to make sure they are adequate and functional.
Risk evaluation: ISAs need risk evaluation techniques in order to acquire a wide understanding of an enterprise and its atmosphere, with the objective of determining risk of material misstatement. ISAs require an auditor acquires to understand the business threats, such as its strategic risks and operating risks. Auditors following ISAs must also figure out how their customer responds to such threats as the auditor plans and performs the audit. Moreover, under ISA, an auditor is needed to make queries of the inner auditors of the company being audited, with the purpose of acquiring a better understanding of the entity's skills in evaluating risk. Auditors following ISA should take all information regarding threats, as well as the customer's reactions to these threats, into account when evaluating the chance of material misstatement (Huault & Richard, 2012).
How the efforts of the Auditing Standards Board and the International Auditing and Assurance Board are similar to the Financial Accounting Standards Board and the International Accounting Standards Board.
There is an increasing international approval of International Financial Reporting Standards (IFRS), and much has been published about that subject. In the international economic system and understanding international accounting standards, auditors also need to be aware of the impact of international audit standards on U.S. audit standards. ISA depicts transparent, top quality audit standards that have been getting worldwide approval. This is obvious in the U.S. As the ASB's efforts to clarify the standards, is the converging U.S. GAAS with ISAs or developing reasons for not doing so. Furthermore, the IAASB is constantly considering the approval of ISAs by market regulations in the cross-border industry offerings and reports of international providers (Tapscott, Eccles & Krzus, 2013).
The Auditing Standards Board (ASB) launched initiatives to redraft nearly all the audit segments in the Codification of Claims on Auditing Specifications. It shows that the ASB's drafts conventions are developed to make the segments easy to implement, read, and understand. Among other developments, approved by…