The IAASB has issued ISA 540 (Revised) and the FRC in the UK is expected to follow suit, with ISA (UK) 540 (Revised July 2018) currently out for exposure.
While the revised ISA isn’t radically different from the existing ISA, there are some changes in approach and the work required in auditing estimates (irrespective of their nature and size) and some of these changes may prove more challenging for auditors to get to grips with. Help is at hand though as we will be considering what implementation guidance might be needed here.
ISA 540 (Revised) is applicable for audits of accounting periods beginning on or after 15 December 2019.
ISA (UK) 540 (Revised July 2018) is expected to be applicable for audits of accounting periods beginning on or after 15 December 2019 (with early adoption to be permitted in the UK).
While this might seem a long way off, it really isn’t and auditors will need this time to understand the revised requirements and be ready to implement them.
IAASB consultations on its Strategy for 2015-19, related work plan and further outreach activities identified a need to address issues relevant to financial institutions, in particular, those arising from the adoption of IFRS 9 and the expected credit loss model for loan loss provisions.
It was felt that these issues were equally relevant to auditing accounting estimates more generally. As a result, an holistic review of ISA 540 was carried out to establish more robust requirements and guidance to enhance audit quality by driving auditors to perform appropriate procedures in relation to accounting estimates and related disclosures, as well as emphasising the importance of professional scepticism when auditing accounting estimates.
So what does this mean in practice? Over the coming months, ICAEW will be exploring what implementation support is needed to help auditors address these challenges, including practical guidance, examples and webinars. In the meantime, take a look at our overview of the key changes and challenges.
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