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PROPOSED CLARIFIED INTERNATIONALSTANDARDS ON AUDITING (UK AND IRELAND)Consultation Paper issued by the Auditing Practices Boardof the Financial Reporting Council

Comments from ACCAJuly 2009

ACCA (the Association of Chartered Certified Accountants) is the largest andfastest-growing global professional accountancy body with131,500 members and 362,000 students in 170 countries.

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Executive Summary

ACCA welcomes the opportunity to respond to the Consultation Paper ProposedClarified International Standards on Auditing (UK and Ireland) issued by theAuditing Practices Board (APB) of the Financial Reporting Council.

We express our appreciation for the very detailed information provided in theconsultation, which facilitates responses and enhances the UK and Ireland dueprocess for setting auditing standards.

We welcome the proposed substantial reduction in UK and Ireland-specificrequirements and guidance from the level in the extant APB standards. Thisreflects both the success that the APB has had in arguing internationally for astrengthening of auditing standards and also its commitment to convergencetowards International Standards of Auditing (ISAs).

We also welcome the announcement that the APB is updating its Practice Noteproviding guidance on documenting the audit of the smaller entity. This willassist in achieving proportionate and efficient use of the new standards by alltypes of audit firm.

Our response provides general comments, answers to the specific questionsasked in the Consultation Paper and detailed comments on the UK and Irelandsupplementary material that remains in the proposed ISAs (UK and Ireland).

We examine the criteria proposed by the APB for inclusion of supplementaryrequirements (of which there are few) and supplementary guidance. Wepropose a tightening of the inclusion criteria and explain in detail how thatshould, in our view, affect the clarified standards. We also comment on thetitles of the documents, the way material relating to UK and Ireland companieshas been included and the treatment of supplementary guidance onmanagement and those charged with governance.

General Comments

INTRODUCTION

ACCA welcomes the opportunity to respond to the Consultation Paper ProposedClarified International Standards on Auditing (UK and Ireland) issued by theAuditing Practices Board of the Financial Reporting Council.

We very much appreciate the clarity and amount of information given in theConsultation Paper and the related proposed standards. This has enhanced thedue process for setting auditing standards, by making it easier for those wishingto comment to do so.

As requested in the Consultation Paper, we have confined our comments tothose aspects that are unique to the UK and Ireland, as the internationalstandards are now issued. ACCA has been a long-term and vocal supporter ofinternational auditing standards and we continue to believe that in the longterm it is in the best interests of the United Kingdom and Ireland to conformauditing standards fully to those used internationally.

We appreciate, therefore, the strenuous efforts the APB has made to reduce thenumber of requirements unique to the UK and Ireland (‘plusses’) and theirassociated application and other explanatory material. We note that most of thesupplementary requirements proposed to be retained relate to compliance withlaw or regulation in the UK and Ireland and that only five relate to audit quality.

We also welcome the fact that the APB is updating Practice Note 26 Guidancefor Smaller Entity Audit Documentation, and believe that this will assist in theconsistent and proportionate implementation of the new standards.

In the section of this response headed Specific Questions, we answer thequestions set out in the Consultation Paper. That section begins with anexamination of the criteria proposed by the APB for inclusion of supplementaryrequirements and guidance. In our view, the criteria proposed are notsufficiently concrete and allow too much discretion. We have proposed strictercriteria and, in our answers in that section to further questions in theConsultation Paper, we explain how the application of those criteria wouldresult in elimination of the audit quality ‘plusses’.

In the section of this response headed Comments on Individual ISAs, weprovide detailed comments on the individual proposed ISAs (UK and Ireland)and on related pronouncements (ISQC (UK and Ireland) 1 and the ProposedRevised Statement on Scope and Authority of Pronouncements). This has beendone not only to explain in sufficient detail how our proposed criteria would beimplemented, but also to suggest changes that could be appropriate even if thecriteria proposed by the APB remain unchanged. As a by-product of this work,we have identified minor textual errors and have mentioned them asappropriate.

In this section, we give below our views on three pervasive aspects of theproposed clarified ISAs (UK and Ireland):

Titles of the standards The context of the UK and Ireland company Management and those charged with governance (and the directors)

TITLES OF THE STANDARDS

The proposed standards are ISAs (UK and Ireland) and ISQC (UK andIreland) 1. This nomenclature differentiates them from the internationalstandards on which they are based.

Ideally, auditors in the UK and Ireland should be able to perform and report inaccordance with clarified ISAs, so that securities regulators can accept theiraudits for cross-border filings with no doubts as to whether, and to what extent,the internationally recognised standards have been applied. A secondary, butnot unimportant, benefit of this for users of the APB’s standards would be toremove from use some two and a half thousand occurrences of ‘(UK andIreland)’.

There are, however, impediments to achieving this:

Under an IAASB Policy Position, national auditing standards can only beregarded as conforming to ISAs if all relevant standards and guidance areincluded; but the APB is not currently proposing to adopt ISA 700, andthe ISA 800 series.

The EC is currently consulting on the adoption of ISAs in the EU and isinviting comment on whether, across Europe, auditors will report inrelation to ‘ISAs as adopted in the EU’.

We suggest that the APB should establish its position with regard to the futuretitles of its standards and endeavour to influence the IAASB and the EC asnecessary to remove the above impediments.

THE CONTEXT OF THE UK AND IRELAND COMPANY

As set out in the section of our response headed Comments on Individual ISAs,we have identified instances where the supplementary material makes sense inthe context of a company but does not for other entities.

ISA (UK and Ireland) 200 states that:

‘ISAs (UK and Ireland) are written in the context of an audit of financialstatements by an auditor.’ (paragraph 2)

‘The financial statements subject to audit are those of the entity,prepared by management of the entity with oversight from those chargedwith governance.’ (paragraph 4).

The ISAs are written in the context of the audited entity, which can be, but isnot always, a company.

Given the current extent of audit exemption for smaller companies, the absolutenumber of company audits in the UK and Ireland is no longer overwhelmingcompared to those of other entities, such as pension schemes. We suggest,therefore, that the issue of clarified ISAs (UK and Ireland) presents an idealopportunity to review the presentation of each aspect of the supplementaryguidance to ensure that, where it applies only to companies, it is appropriatelyidentified.

We give two examples below of how material in ISA (UK and Ireland) 560 hasbeen drafted in a way that requires the auditor to reinterpret it back to theaudited entity, if that is not a company.

Example – in a paragraphParagraph A18-1 of ISA (UK and Ireland) 560, in a section headed AuditorAction to Seek to Prevent Reliance on Auditor’s Report, is as follows:

Where the financial statements are issued but have not yet been laidbefore the members or equivalent, or if those charged with governancedo not intend to make an appropriate statement at the annual generalmeeting, then the auditor may consider making an appropriatestatement at the annual general meeting. The auditor does not have astatutory right to communicate directly in writing with the membersalthough, if the auditor resigns or is removed or is not reappointed, theauditor has, for example, various duties under company law.

Only when the reader gets to the words ‘company law’ is it clear that the words‘members’ and ‘annual general meeting’ are in the context of companies. Itwould be much clearer to reorder the material. It is also important to note thatthe word usage has changed as the paragraph refers only to ‘those charged withgovernance’ – rather than to ‘management, or those charged with governance’,which was used in the preceding (non-supplementary) paragraph. This coulditself be a source of confusion.

Example – in a footnoteIn a section of ISA (UK and Ireland) 560 headed Facts Which Become Knownto the Auditor after the Financial Statements Have Been Issued, paragraph 15commences: ‘If management amends the financial statements, the auditor shall. . . ‘

There is a reference after the words ‘Financial Statements’ which references thefollowing footnote text:

In the UK the detailed regulations governing revised financial statementsand directors' reports, where the revision is voluntary, are set out insection 454 of the Companies Act 2006. There are no provisions in theCompanies Acts of the Republic of Ireland for revising financialstatements.

This footnote would be useful and accurate if the main text was dealing onlywith the audit of companies. However, only when the reader gets to the words‘Companies Act’ does the context of the footnote become apparent. It should bere-ordered to begin, ‘For companies . . ‘ or begin with an immediate referenceto ‘The Companies Act . . .

MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE (ANDTHE DIRECTORS)

The extant UK and Ireland ISAs each contain four or more paragraphs ofguidance on the terms ‘management’ and ‘those charged with governance’.Those standards were first introduced for audits of financial statements forperiods commencing on or after 15 December 2004. At that time, it wasreasonable to provide such guidance as UK and Ireland auditors were lessfamiliar with differentiating the two roles.

This has changed because auditors have now been used to dealing withstandards that employ these concepts. After specific enquiry of representativesof auditor members of ACCA, we believe that the time is right to eliminatealmost all supplementary guidance on the interpretation of these terms.This would allow auditors to exercise their judgement in an appropriate way.

While we are pleased to note that a more targeted approach is alreadyproposed, with guidance being added only to certain ISAs (UK and Ireland) atselected points in the text. However, the result is sometimes to introduce doubtover interpretation where none existed before.

It may be that the orientation towards companies has also been a factor in thedecision to make unequivocal declarations concerning which persons aremembers of ‘those charged with governance ‘ and what responsibilities theyhave.

Of particular concern is the definition in paragraph 13(o) of ISA (UK andIreland) 200:

(o) Those charged with governance – The person(s) or organization(s)(e.g., a corporate trustee) with responsibility for overseeing the strategicdirection of the entity and obligations related to the accountability of theentity. This includes overseeing the financial reporting process. For someentities in some jurisdictions, those charged with governance mayinclude management personnel, for example, executive members of agovernance board of a private or public sector entity, or an owner-manager.

In the UK and Ireland, those charged with governance include thedirectors (executive and non-executive) of a company or other body, themembers of an audit committee where one exists, the partners,proprietors, committee of management or trustees of other forms ofentity, or equivalent persons responsible for directing the entity’s affairsand preparing its financial statements.

Taken at face value, these are not acceptable as changes to the ISAs, as thewhole basis on which the ISAs deal with management and those charged withgovernance is undermined. The proposed addition extends oversight of ‘thestrategic direction of the entity to actually ‘directing the entity’s affairs’ andextends oversight of ‘the financial reporting process’ to actually ‘preparing itsfinancial statements’. This removes from management its executive role inpreparing the financial statements and leaves those charged with governanceexercising oversight over themselves.

We assume that this is not the interpretation that the APB intends and sosuggest finishing the additional wording before the words, ‘. . . responsible fordirecting the entity’s affairs and preparing its financial statements.’

The root cause of the difficulty is that the ISAs deal with management andthose charged with governance as concepts but also attempt to identify theconcepts to the persons carrying out the roles. There is also potential forconfusion between what people actually do (ie exercise oversight or manage)and the related ISA concepts.

Where there is a clear personal as well as functional separation (for example atwo-tier corporate board) this is uncomplicated. In the UK and Irelandcompany, directors (ie the whole board) are responsible for the preparation ofthe financial statements so have an ISA management concept role. Somedirectors may be fulfilling a mainly ISA governance concept role (non-executives), others mainly an ISA management concept role, but it is commonfor both ISA concept roles to be found to some extent in all directors. ISAs try toput this in tangible form by making statements such as, ‘For some entities insome jurisdictions, management includes some or all of those charged withgovernance, for example, executive members of a governance board, or anowner-manager.’ (ISA 200 paragraph 13(h))

We are concerned that, by trying to provide guidance for the UK and Ireland,the APB is introducing more uncertainty. For example, In the Example – in aparagraph in our response under the heading above The Context of the UK andIreland Company we noted that the shift from ‘the entity’ to ‘the company’ hadresulted in the potentially confusing omission of the word ‘management’.

A significant example is provided by footnote 11a in ISA (UK and Ireland) 240.The footnote refers to the position that: ‘In the UK and Ireland those chargedwith governance are responsible for the preparation of the financial statements.’

Footnote 11a is made in relation to paragraph 31 in the following context:

Management11a is in a unique position to perpetrate fraud because ofmanagement’s ability to manipulate accounting records and preparefraudulent financial statements by overriding controls that otherwiseappear to be operating effectively. Although the level of risk ofmanagement override of controls will vary from entity to entity, the risk isnevertheless present in all entities. Due to the unpredictable way inwhich such override could occur, it is a risk of material misstatementdue to fraud and thus a significant risk.

The footnote here is misleading because undoubtedly management does havethe capacity referred to, irrespective of the responsibility for the preparation ofthe financial statements. It is possible that auditors could interpret the footnoteas meaning that, in the UK and Ireland, only those charged with governanceoccupy this ‘unique position’ and as a result auditors could place too littleemphasis on, for example possible management override of controls.

In the section of our response Comments on Individual ISAs we comment oninstances where supplementary guidance could be withdrawn and drawattention to further examples in support of our recommendation, where suchwording introduces uncertainty.

Specific QuestionsIn this section of our response, we answer the questions set out in theConsultation Paper.

QUESTION 1

Do you agree with the criteria APB has applied for deciding to retain:(a) Supplementary requirements(b) Supplementary guidance?

If not, please give your reasons and explain what criteria you would apply.

Supplementary requirementsWe do not agree with the two criteria used for keeping supplementaryrequirements, that they:

relate to UK and Irish legal/regulatory requirements, or are still considered important for audit quality (and are not covered by

the International Auditing and Assurance Standards Board’s (IAASB)requirements in the clarified ISAs)

Legal/regulatory requirementsThe words ‘relate to’ are not sufficiently specific and allow too much discretion.A more-concrete test should be used: a requirement must be such that itsinclusion is necessary because of specific legal requirements relating to thescope of statutory audits. This is as contemplated by Article 26(3) of theStatutory Audit Directive (Directive 2006/43/EC). This would sanction theretention of a requirement in the long term.

In the short term, pragmatically, we recognise that some existing requirementsin relation to the auditor’s right and duty to report to regulators in the financialsector do not satisfy this criterion, but have to be retained.

Section B of proposed clarified ISA (UK and Ireland) 250 applies not only to theaudit but also to other matters specified by legislation, or by a regulator, thatare not related to the scope of statutory audits. In other words, the standarddeals with the rights and duties of the holder of the office of auditor, not solelywith the conduct of the audit.

In the long-term we suggest that there should be a re-evaluation of how thismaterial is promulgated given the overarching need to establish commonauditing standards throughout the EU and indeed globally. Such material neednot necessarily be in auditing standards, but could be dealt with in other ways.

Audit qualityThe criterion that requirements are ‘still considered important’ is imprecise.Given that the adoption of ISAs in the EU is going to necessitate the removal of‘audit quality plusses’ we suggest that a much stricter test must be applied. Inour view a requirement should only be carried forwards if (1) its removal wouldsignificantly damage the quality of auditing and (2) the APB reasonably expectsthat ISAs will be changed to include it before EU adoption requires its removal(were it still to be a national ‘plus’).

The clarified ISA contain many hundreds of requirements, it is very difficult toargue that any one national ‘plus’ could make an appreciable difference tooverall audit quality. This is especially true as the objectives of the clarified ISAsthat provide a framework for individual requirements generally remainunchanged by the addition of a further requirement.

As the European Commission (EC) is currently consulting over the adoption ofISAs in the EU, and the IAASB has announced a period during which nochanges will be implemented in its standards, we see little prospect of UK andIreland plusses entering the ISAs before their EU adoption.

There is also a practical reason for making change at the time of adoption of theclarified ISAs, rather than having to accept change later. The implementation ofthe clarified ISAs is a time of substantial improvement to standards andrepresents an opportunity to remove what is a relatively tiny number of extrarequirements. Conversely, there may be adverse reaction from users at a laterdate if the EC adoption results in a ‘downgrading of UK and Ireland auditingstandards’.

Supplementary guidanceWe agree with two of the criteria that the APB has proposed for keepingsupplementary guidance: that such guidance supports a proposed retainedsupplementary requirement; or it provides other guidance relating tolegal/regulatory matters.

We do not agree, however, with the criterion that ‘It provides other guidancethat is still considered helpful to achieving audit quality.’ This test is not strictenough when the overall objective is to conform as closely as possible to theinternational standards. The test has allowed both the retention of extantguidance and also the creation of new guidance. In several instances where anextant requirement ‘plus’ has been dropped, it has re-emerged assupplementary guidance. We do not accept this approach to justifying thecreation of further supplementary guidance. We suggest that, instead, guidanceshould only be included if it is necessary to ensure that the requirementsconcerned are met in the UK and Ireland.

In the section of this response Comments on Individual ISAs, we examine thesupplementary guidance in detail and suggest appropriate changes. In manyinstances, through applying stricter criteria, we conclude that there is scope forelimination of guidance.

Q2 Are there any particular proposed audit quality supplementaryrequirements and guidance that you are believe are not necessary to retain?If yes, please identify them and give your reasons.

Supplementary requirements (and related guidance)In our response to question 1, we disagreed with the criteria used to determinethe retention of supplementary requirements relating to ‘audit quality’. Underour preferred criteria, there would be no audit quality supplementaryrequirements.

Having said that, we comment further below on the requirements proposed tobe retained. In this regard, we also comment on a requirement in ISA 570Going Concern, regarded by the APB as a ‘legal/regulatory plus’.

ISA 450 Evaluation of misstatementsRequiring the auditor to seek to obtain a written representation from thosecharged with governance that explains their reasons for not correctingmisstatements brought to their attention by the auditor. (paragraph 14-1)

We see no significant impact on audit quality from this proposed requirement.

In addition to the reasons set out in our response concerning criteria forinclusion as a supplementary requirement, we consider that there would beduplication between requirements. ISA 450 requires a written representationthat the uncorrected misstatements are immaterial, individually and inaggregate, to the financial statements as a whole. A summary of such items isrequired be included in, or attached to, the written representation.

Clearly, this can be considered to be a written representation that the reason fornot correcting is that potential adjustments are not material. Any further reasonis secondary and hence of less relevance to the auditor.

Any auditor who is concerned that those charged with governance lackinformation on a proposed adjustment is at liberty to raise the matter directly.This facility is likely to generate a more considered and principles-basedapproach to the audit than, in effect, requiring the above summary of items tocontain boilerplate wording of further reasons for non-adjustment.

ISA 510 Opening balancesExtending the requirements relating to opening balances on initialengagements to all audits. (paragraph 3)

We see no significant impact on audit quality from this proposed requirement.

In addition to the reasons set out in our response concerning criteria forinclusion as a supplementary requirement we are concerned that the extensionof the objective might be thought to be the equivalent of the creation of a newISA applying the requirements applicable to an initial audit engagement also inthe circumstances of a continuing audit.

International due process concluded that there was no need for suchrequirements in relation to a continuing engagement.

Paragraphs A3 and A-4 of ISA (UK and Ireland) 510 act to make therequirements ‘subject to’ certain conditions:

‘A3-1. If a continuing auditor issued an unqualified report on thepreceding period’s financial statements and the audit of the currentperiod has not revealed any matters which cast doubt on those financialstatements, the procedures regarding opening balances need not extendbeyond ensuring that opening balances have been appropriately broughtforward and that current accounting policies have been consistentlyapplied.

A3-2. If a continuing auditor issued a modified opinion on the precedingperiod’s financial statements the auditor considers whether the matterwhich gave rise to the qualification has been resolved and properly dealtwith in the current period’s financial statements.’

A normal continuing audit will include proper consideration of the mattersreferred to in the two objectives of ISA 510. The audit is planned and executedin order to detect misstatements that materially affect the current period’sfinancial statements whether they originate from opening balances orelsewhere. The consistent application of accounting policies and properaccounting for any changes thereto are also addressed as a normal aspect ofthe current period’s audit. The continuing auditor will already have informationon their application in the prior period and will not need prompting to carry outprocedures designed to identity them as contemplated by ISA 510 in respect ofa period prior to an initial engagement.

ISA 570 Going concernRequiring the auditor to plan and perform procedures specifically designed toidentify any material matters which could indicate concern about the entity'sability to continue as a going concern. (paragraph 13-2)

We do not agree with the inclusion of this supplementary requirement.

In addition to the reasons set out in our response concerning criteria forinclusion as a supplementary requirement, we consider that it substantiallyduplicates aspects of other requirements. Paragraph 12 requires the planningand performance of procedures specifically designed to evaluate management’sassessment of the entity’s ability to continue as a going concern and paragraph14 entails the auditor remaining alert to relevant matters throughout the audit.Given that paragraph 13-2 is concerned with ‘material matters which couldindicate concern about the entity's ability to continue as a going concern’, it isdifficult to envisage how so significant a matter would not be brought to light bythese requirements.

ISA 570 Going concernRequiring the auditor to document the extent of the auditor’s concern (if any)about the entity's ability to continue as a going concern. (paragraph 17-1)


In addition to the reasons set out in our response concerning criteria forinclusion as a supplementary requirement, we consider that it is unnecessarybecause paragraph 8(c) of ISA (UK and Ireland) 230 Audit Documentationalready requires documentation of significant matters arising during the audit,the conclusions reached thereon, and significant professional judgments madein reaching those conclusions.

ISA 570 Going concern (legal/regulatory plus)Requiring the auditor to disclose in the auditor’s report if the periodconsidered by those charged with governance in assessing going concern isless than one year from the date of approval of the financial statement andthose charged with governance have not disclosed that fact themselves.(paragraph 17-2)


The requirement in paragraph 17-2 is regarded by the APB as a‘legal/regulatory plus’. There is, however, no legal or regulatory requirementapplicable to all entities that may be audited in accordance with ISAs (UK andIreland) that requires this disclosure. If treated as an audit quality ‘plus’ wewould suggest its exclusion for the reasons set out in our response concerningcriteria for inclusion as a supplementary requirement.

720 Section A Other informationRequiring the auditor to consider including an “Other Matters” paragraph inthe auditor’s report when an amendment is necessary in the other informationand the entity refuses to make the amendment. (paragraph 16-1)


In addition to the reasons set out in our response concerning criteria forinclusion as a supplementary requirement, we consider that this requirementduplicates others.

The requirement in the particular circumstances is that ‘the auditor shallconsider’ including an Other Matter paragraph. The need to take (rather thanconsider) appropriate action is already required by paragraph 16. Therequirements relating to Other Matter paragraphs are in ISA (UK and Ireland)706, which includes guidance on circumstances in which such a paragraphmay be necessary.

If the paragraph remains, the following matters should be addressed. Theparagraph refers to ‘the entity’ rather than either continuing reference tomanagement or introducing mention of those charged with governance. Theparagraph also uses the plural form ‘Other Matters’, whereas ISA (UK andIreland) 706 establishes that the term is employed in the singular, as in ‘anOther Matter Paragraph’.

Supplementary guidance

In our response to question 1, we disagreed with the criteria used to determinethe retention of supplementary guidance. Under our preferred criteria, therewould be fewer instances where supplementary guidance was appropriate.

In the section of this response Comments on Individual ISAs, we examine thesupplementary guidance in detail and suggest appropriate changes.

In the section of this response General Comments, we summarise our views ontwo pervasive aspects of the supplementary guidance:

The context of the UK and Ireland company Management and those charged with governance (and the directors)

Q3 Do you believe that the proposed supplementary requirements andguidance are clearly expressed? If not, please explain how they could beimproved.

In the main, we are pleased with the clarity of expression. In some instances,identified in the section of this response Comments on Individual ISAs, we havebeen able to suggest improvements, which we hope will be of assistance.

Q4 Are there any particular current audit quality supplementary requirementsand guidance that APB has not proposed to retain that you believe shouldbe? If so, please identify them and give your reasons.

We do not propose the retention of any further supplementary requirements.

In some instances, identified in the section of this response Comments onIndividual ISAs, we have proposed a rearrangement of material or a dispositionof a proposed supplementary requirement that could involve furthersupplementary guidance.

Comments on Individual ISAsIn this section of our response, we comment on the APB supplementarymaterial in individual proposed clarified ISAs (UK and Ireland). References areto paragraphs or footnotes as numbered in those documents. We have nodetailed comments on ISAs 250 Section B, 320, 330, 500, 505, 530, 700and 720 Section B.

ISA (UK AND IRELAND) 200

Footnote 1aThe footnote provides further information on an example. This is not sufficientreason to add it to the ISAs. Parties interested in the specific circumstances ofthe example may obtain further information from the APB website.

Footnote 1bThe footnote is concerned with the responsibilities of those charged withgovernance, management, and for corporate entities, directors. As set out in ourgeneral comment on such matters, there is no need for this footnote.

Footnote 2 (to paragraph 9)Footnote 2 could be extended to refer to the reporting obligations under anti-money laundering provisions in the UK and Ireland (please refer to ourcomments on ISA (UK and Ireland) 250 below).

Paragraph 13(h)The addition to the definition of ‘management’ merely repeats aspects of thatdefinition. The word ‘may’ removes any difference from what is already presentin the ISA; consequently, this additional wording should be deleted.

Paragraph 13(o)The additional wording is an unequivocal statement for the UK and Ireland as towhich persons are included in to the definition of ‘those charged withgovernance’. As such, it does not cope with exceptions and should not beincluded in such a form.

The wording also changes the ISA definition in a manner that is unacceptable.We deal with this matter in our general comments on those charged withgovernance and management.

Footnote 6The addition to the footnote states that ISA 800 has not been promulgated forapplication in the UK and Ireland but does not provide any information onparagraph 8 of that ISA. This leaves unanswered the question as to whatauditors are to do under the ISAs that have been promulgated when financialstatements are prepared in accordance with a special purpose framework.Paragraph 8 of ISA 800 includes specific requirements and there are fourrelated paragraphs of application and other explanatory material. While it maybe thought to be clear that compliance with those requirements (and others inISA 800) is not necessary to allow an auditor to assert compliance with ISAs(UK and Ireland), we suggest that there needs to be UK and Ireland guidance tocover such circumstances. This would be consistent with the approach taken forISA (UK and Ireland) 700: footnotes in several places draw attention to the factthat compliance with ISAs may still be asserted.

There is a difference, however, in that ISA (UK and Ireland) 700 itself containsthat assertion (paragraph 5), which we argue elsewhere removes the need forrelated footnoted guidance to that effect.

The proposed Scope and Authority of Pronouncements (revised) contains aparagraph concerning the position with respect to ISA (UK and Ireland) 700 butis silent on ISA 800. We suggest that material should be included to indicatethe effects, if any, of the non-adoption of certain ISAs. We recognise that thismay be affected by decisions taken in the future at EU level regarding adoption.

Paragraph A14-1The additional guidance on the UK and Ireland ethical requirements iswelcome, subject to the comments below.

The paragraph refers to ‘Ethical Standards for Auditors’ – we suggest thisshould be conformed to the title used in the standards themselves and in theAuditing Practices Board Scope and Authority of Pronouncements (revised):‘the APB Ethical Standards’. However, if the APB wishes to change itsterminology to differentiate between ethical standards for auditors and ethicalstandards for reporting accountants (for example) the current consultationprovides a good opportunity to start that process and to explain such changes.

In the context of paragraph 14, we note the assertion that: ‘The APB is notaware of any significant instances where the relevant parts of the IFAC Code ofEthics are more restrictive than the Ethical Standards for Auditors‘. We suggestthat users would also benefit from knowing that no member body of IFAC isallowed to apply less stringent standards than those stated in the IFAC Code ofEthics for Professional Accountants. This information is given in, for example,APB Ethical Standard 1 (Revised) Integrity, Objectivity and Independence.

Paragraph A16Please refer to our comment on footnote 1c of ISA (UK and Ireland) 260(reproduced below):

The additional guidance on the UK and Ireland ethical requirements iswelcome, but there is scope for considering the wording here and theopportunity at paragraph A16 of ISA (UK and Ireland) 200 to deal withindependence, to achieve economy in referencing such material.


Footnote 1aThe footnote is concerned with the responsibilities of those charged withgovernance. As set out in our general comment on such matters, there is noneed for this footnote.

Footnote 2aThe additional guidance on the UK and Ireland legal requirements is welcome.

Footnote 2bThe footnote is concerned with the responsibilities of those charged withgovernance. As set out in our general comment on such matters, there is noneed for this footnote.

We are uncomfortable with the statement that ‘In the UK and Ireland the termsof the audit engagement are agreed with those charged with governance.’because (as paragraph A21 states) the roles of management and those chargedwith governance in agreeing the terms of the audit engagement for the entitydepend on the governance structure of the entity and relevant law or regulation.The statement in footnote 2b may be correct for a UK registered company (asthe directors are ‘those charged with governance’) but other entities with more-complex governance structures are also audited in accordance with ISAs (UKand Ireland).

Footnote 6The note that the APB has not promulgated ISA 700 for application in the UKand Ireland is welcome, but there is no need to include the mention ofparagraph 5 of ISA (UK and Ireland) 700, as the inclusion of the material inthat document itself is sufficient.

Footnote 7 and footnote 9The notes that the APB has not promulgated the International Framework forAssurance Engagements for application in the UK and Ireland are welcome butthe nature of the characteristics in the Framework are important to the auditor’sacceptance of an engagement. As a minimum, the APB should indicate how, inthe absence of reference to the Framework, the auditor should proceed.

Footnote 10Please refer to our comment on footnote 6 of ISA (UK and Ireland) 200(reproduced below):

The addition to the footnote states that ISA 800 has not beenpromulgated for application in the UK and Ireland but does not provideany information on paragraph 8 of that ISA. This leaves unanswered thequestion as to what auditors are to do under the ISAs that have beenpromulgated when financial statements are prepared in accordance witha special purpose framework. Paragraph 8 of ISA 800 includes specificrequirements and there are four related paragraphs of application andother explanatory material. While it may be thought to be clear thatcompliance with those requirements (and others in ISA 800) is notnecessary to allow an auditor to assert compliance with ISAs (UK andIreland), we suggest that there needs to be UK and Ireland guidance tocover such circumstances. This would be consistent with the approachtaken for ISA (UK and Ireland) 700: footnotes in several places drawattention to the fact that compliance with ISAs may still be asserted.

There is a difference, however, in that ISA (UK and Ireland) 700 itselfcontains that assertion (paragraph 5), which we argue elsewhereremoves the need for related footnoted guidance to that effect.

The proposed Scope and Authority of Pronouncements (revised) containsa paragraph concerning the position with respect to ISA (UK and Ireland)700 but is silent on ISA 800. We suggest that material should beincluded to indicate the effects, if any, of the non-adoption of certainISAs. We recognise that this may be affected by decisions taken in thefuture regarding adoption at EU level.

Footnote 17aThe footnote is against a cross-reference to an example engagement letter and itmerely reports that the example has not been tailored to the UK and Ireland.The example itself is preceded by a note to that effect and we do not believethat it is helpful to duplicate that information in footnote 17. The footnote doesnot meet the APB’s test of being ‘helpful to achieving audit quality’.We note that elsewhere in the proposed ISAs (UK and Ireland) such ‘doublementions’ have been avoided, for example in ISA (UK and Ireland) 510, wherean appendix presents illustrations of auditors’ reports with modified opinions.

Paragraph A33-1The additional guidance on the UK and Ireland legal requirements is welcome.

Footnote 18The additional guidance on the UK and Ireland standard is welcome as it servesto give a paragraph reference equivalent to that in ISA 700.

Appendix 1We welcome the clarification that the example has not been tailored for the UKand Ireland.


Paragraph 7(n)Please refer to our comments on paragraph A14-1 of ISA (UK and Ireland) 200(reproduced below).

The additional guidance on the UK and Ireland ethical requirements iswelcome, subject to the comments below.

The paragraph refers to ‘Ethical Standards for Auditors’ – we suggest thisshould be conformed to the title used in the standards themselves and inthe Auditing Practices Board Scope and Authority of Pronouncements(revised): ‘the APB Ethical Standards’. However, if the APB wishes tochange its terminology to differentiate between ethical standards forauditors and ethical standards for reporting accountants (for example)the current consultation provides a good opportunity to start that processand to explain such changes.

In the context of paragraph 14, we note the assertion that: ‘The APB isnot aware of any significant instances where the relevant parts of theIFAC Code of Ethics are more restrictive than the Ethical Standards forAuditors‘. We suggest that users would also benefit from knowing that nomember body of IFAC is allowed to apply less stringent standards thanthose stated in the IFAC Code of Ethics for Professional Accountants. Thisinformation is given in, for example, APB Ethical Standard 1 (Revised)Integrity, Objectivity and Independence.

Footnote 4aPlease refer to our comments on paragraph A14-1 of ISA (UK and Ireland) 200(see re paragraph 1(n) immediately above).



Footnote 16The footnote provides a cross-reference to paragraph A61of ISQC (UK andIreland) 1. In ISQC (UK and Ireland) 1 a footnote has been added dealing withspecific UK and Ireland matters. Footnote 16 substantially reproduces thatinformation.

While we recognise that there is a slight difference in the wording, the longlengths of the two footnotes argue strongly that the material would be betterkept in one place only: ISQC (UK and Ireland) 1.

The text itself is in need of amendment as it is both out of date and does notreflect the different regimes of the UK and Ireland Recognised SupervisoryBodies.

We deal with that at length in our comments on ISQC (UK and Ireland) 1.

Specific Audit Documentation Requirements in Other ISAsWe welcome the inclusion of references to accommodate the additional UK andIreland documentation requirements.


Footnote 11aThe footnote refers to the position that ‘In the UK and Ireland those chargedwith governance are responsible for the preparation of the financial statements.’As set out in our general comment on such matters, there is no need for thisfootnote.

Footnote 11a is made in relation to paragraph 31 in the following context:

Management11a is in a unique position to perpetrate fraud because ofmanagement’s ability to manipulate accounting records and preparefraudulent financial statements by overriding controls that otherwiseappear to be operating effectively. Although the level of risk ofmanagement override of controls will vary from entity to entity, the risk isnevertheless present in all entities. Due to the unpredictable way inwhich such override could occur, it is a risk of material misstatementdue to fraud and thus a significant risk.

The footnote here is misleading because undoubtedly management does havethe capacity referred to, irrespective of the responsibility for the preparation ofthe financial statements. It is possible that auditors could interpret the footnoteas meaning that, in the UK and Ireland, only those charged with governanceoccupy this ‘unique position’ and as a result auditors could place too littleemphasis on, for example possible management override of controls.

In our general comments on the treatment of additional UK and Ireland materialon those charged with governance and on management (and the directors) wedraw on this and other examples to show the dangers of the proposedapproach.

Footnote 11a is also referenced from paragraphs A12, A45 and A58. Thoseparagraphs mention responsibility for preparation of the financial statements butalso cover other aspects of management’s responsibility relevant to fraud.Problems arise through the existence of the footnote that are similar to thosenoted in relation to paragraph 31. Given the specific wording of paragraph A58the footnote is unnecessary there, as the paragraph refers to ‘management and,where appropriate, those charged with governance’.


Footnote 23The footnote could usefully make use of wording developed in response to ourcomment on paragraph A14-1 of ISA (UK and Ireland) 200.

Footnote 25aThe additional guidance on the UK and Ireland anti-money launderinglegislation is welcome.

ISA (UK AND IRELAND) 250 SECTION A

Our comments below are made in the light of the proposed retention of sectionsA and B of ISA (UK and Ireland) 250. In our answer to question 1 of thespecific questions set out in the Consultation Paper we expressed the view that:

. . . there should be a re-evaluation of how this [national] material ispromulgated given the overarching need to establish common auditingstandards throughout the EU and indeed globally. Such material neednot necessarily be in auditing standards, but could be dealt with in otherways.

As a general comment, the inclusion of definitions and other material on moneylaundering and tipping off highlights a difference between the APB’s criteria forinclusion of supplementary guidance (‘helpfulness’) and ACCA’s view thatretention can only be justified if material is necessary to audit quality.

Much of the money laundering material proposed to be included relates toobligations of partners and staff in audit firms and related potential offences. Inour view this should be excluded from the ISAs. It is best dealt with in otherAPB and CCAB guidance.

The material that is necessary is confined to requirements affected byfootnote 4a, which has the effect of making several requirements subject tocompliance with legislation in the UK and Ireland relating to ‘tipping off’.Footnote 4a could be extended to include the advice in paragraph A18-3 asthat further explains the alternative actions for auditors.

Legislation differs between the UK and Ireland and the obligations on auditorsgenerally do not arise except in relation to the particular jurisdiction. As a result,a non-UK and Ireland auditor of a component may have difficulty inrepresenting that they have carried out an audit in accordance with ISAs (UKand Ireland) if the standards include voluminous material on money launderingand tipping off. For example, proposed supplementary requirement 15-1implicitly requires audit staff to have sufficient knowledge to be able to judgewhether circumstances might result in obligations to report.

Footnote 1aThe footnote is concerned with the responsibilities of those charged withgovernance, management, and for corporate entities, directors. As set out in ourgeneral comment on such matters, there is no need for this footnote.

Paragraph 11-1As drafted, paragraph 11-1 is not specific to the UK and Ireland – it is only infootnotes that relevant national legislation is mentioned. It may be removed.

Footnotes 3a and 3bThis material should be covered in guidance (please refer to our generalcomments above).

Paragraph 15-1This supplementary requirement does not contribute to audit quality and shouldnot be included (please refer to our general comments above).

Footnote 4aThe device of using a footnote to make several requirements ‘subject to’ isinteresting. The APB has not provided any argument as to whether such adevice communicates the intention as effectively as changes to the text of theparagraphs affected or the inclusion of a separate requirement (as in the extantISA (UK and Ireland), paragraph 28 that ‘Any discussion of findings with thosecharged with governance and with management should be subject tocompliance with legislation relating to ‘tipping off’ and any requirement toreport the findings direct to a third party.’

Analysis of this text reveals that footnote 4a has not encapsulated the conceptof ‘any requirement to report the findings direct to a third party’. We suggestthat it be amended to do so. We further suggest that the material on legislationcurrently in footnotes 3a and 3b could be better presented as part of thisfootnote.

Paragraph 28-1As set out in our general remarks, we are uncomfortable with the inclusion of asupplementary requirement that, in this instance, does no more that refer to astatutory duty to report, in effect placing the auditor under parallel obligations tothose imposed by law.

The extensive supplementary guidance (paragraphs A19-1 to A19-11) movesfrom the subject of the requirement into the topic of voluntary public interestreporting and certain implications for the auditors’ view of the integrity of thosecharged with governance. While we do not doubt that such material is ‘helpful’it is not necessary that it be included in this ISA UK and Ireland) in the longterm.

Paragraphs A2-1 to A2-3The additional guidance on the UK and Ireland legal requirements is welcome.The language is, however, orientated towards companies and the paragraphsshould be redrafted to make clear which matters are of general application andwhich are only relevant to companies.


Footnote 9Please refer to our comment on footnote 6 of ISA (UK and Ireland) 200(reproduced below):

The addition to the footnote states that ISA 800 has not beenpromulgated for application in the UK and Ireland but does not provideany information on paragraph 8 of that ISA. This leaves unanswered thequestion as to what auditors are to do under the ISAs that have beenpromulgated when financial statements are prepared in accordance witha special purpose framework. Paragraph 8 of ISA 800 includes specificrequirements and there are four related paragraphs of application andother explanatory material. While it may be thought to be clear thatcompliance with those requirements (and others in ISA 800) is notnecessary to allow an auditor to assert compliance with ISAs (UK andIreland), we suggest that there needs to be UK and Ireland guidance tocover such circumstances. This would be consistent with the approachtaken for ISA (UK and Ireland) 700: footnotes in several places drawattention to the fact that compliance with ISAs may still be asserted.

There is a difference, however, in that ISA (UK and Ireland) 700 itselfcontains that assertion (paragraph 5), which we argue elsewhereremoves the need for related footnoted guidance to that effect.

The proposed Scope and Authority of Pronouncements (revised) containsa paragraph concerning the position with respect to ISA (UK and Ireland)700 but is silent on ISA 800. We suggest that material should beincluded to indicate the effects, if any, of the non-adoption of certainISAs. We recognise that this may be affected by decisions taken in thefuture regarding adoption at EU level.

Paragraph A8The insertion is acceptable.

Paragraph A8-1While the material is ‘helpful’, it deals with what the auditor does not do andhence is not necessary.

Footnotes 9a to 9eThese footnotes are welcome.

Paragraph A10-1This paragraph is not necessary and should be removed.

Paragraph A11-1 (and footnote 9f)This paragraph should be removed as it provides guidance on proposedsupplementary requirement 15-1, which we have suggested should beeliminated.

Paragraph A11 refers to Practice Note 12: Money Laundering – Guidance forauditors on UK legislation. The document’s correct title should be used:Practice Note 12 (Revised) Money laundering – Interim guidance for auditorson UK legislation.

Footnote 10aThis footnote is not necessary and should be removed. If retained there is a‘typo’, a missing ‘on’ in ‘matters [on] the financial statements’.

Footnote 10bThis footnote is welcome.

Footnote 11This footnote is not necessary and should be removed.

Paragraph A18-1This paragraph is not necessary and should be removed. If retained, theopening wording: ‘Resignation by the auditor . . . ’, should be changed to‘Withdrawal from the engagement . . .’ for consistency with earlier paragraphs.

Paragraphs A18-2 to A18-3This material is not necessary and should be removed. Paragraph A18-3 couldbe subsumed into footnote 4a (please refer to our earlier comments).

Paragraphs A19-1 to A19-11 and related footnotesPlease refer to our comments above on paragraph A28-1 of this ISA (UK andIreland).


Footnote 1aThis footnote is welcome.

Paragraph 10 (a) and (b)There is no need to amplify the definitions. Please refer to our generalcomments under the heading Management and those charged with governance(and directors).

Footnote 1bThis footnote should be removed. Please refer to our general comments underthe heading Management and those charged with governance (and directors).

Footnote 1cThe additional guidance on the UK and Ireland ethical requirements iswelcome, but there is scope for considering the wording here and theopportunity at paragraph A16 of ISA (UK and Ireland) 200 to deal withindependence, to achieve economy in referencing such material.

Footnote 3The reference to those charged with governance should be removed.

The wording concerning ISA 700 is welcome.

Paragraph A4-1 (and footnote 5a)The first sentence of paragraph A4-1 is welcome but the remainder is notspecific to the UK and Ireland and should be removed.

Paragraph A9-1The reference to the Combined Code is only relevant to a minority of audits andamounts to no more than commentary. It should be removed as it does notcontribute to audit quality.

Footnote 5bThis guidance is only relevant to a minority of audits and is unnecessary. Itshould be removed.

Paragraph A11-1 (and footnote 5c)The sense of this paragraph was a requirement in the extant ISA (UK andIreland). It is not necessary as a requirement nor as guidance, because itsinclusion has no significant effect on audit quality.

Paragraph A21-1The additional guidance on the UK and Ireland ethical requirements iswelcome, but there is scope for considering the wording here and elsewhere(such as at paragraph A16 of ISA (UK and Ireland) 200), so as to achieveeconomy in referencing such material.

Paragraph A37-1This material is not specific to the UK and Ireland. It is not necessary as arequirement nor as guidance, because its inclusion has no significant effect onaudit quality.

Paragraph A38-1The sense of this paragraph was a requirement in the extant ISA (UK andIreland). It is not specific to the UK and Ireland. It is not necessary as arequirement nor as guidance, because its inclusion has no significant effect onaudit quality.

Paragraph A41-1This material is not specific to the UK and Ireland. It is not necessary as arequirement nor as guidance, because its inclusion has no significant effect onaudit quality.


Paragraph A12-1 (and footnote 6a)The material relates primarily to the responsibilities of directors and merelyprovides, at the most, a further motivation to the auditors to do something theyare already required to do. It should be removed, as it adds little to auditquality.


Two footnotes (8a and 12a) have been introduced to extend paragraph A6 anda bullet point in the Appendix to include consideration of those charged withgovernance as well as of management. Please refer to our general commentsunder the heading Management and those charged with governance (anddirectors).

Footnote 8aThis material is not specific to the UK and Ireland. It is not necessary asguidance, because its inclusion has no significant effect on audit quality.

Footnote 12aThis material is not specific to the UK and Ireland. It is not necessary asguidance, because its inclusion has no significant effect on audit quality.


Two footnotes (1a and 3a) have been introduced to extend paragraph 4(a) anda bullet point in paragraph A1 to include consideration of those charged withgovernance as well as of management. Please refer to our general commentsunder the heading Management and those charged with governance (anddirectors).

Footnote 1aThe statement that those charged with governance are responsible for preparingthe financial statements is not directly relevant to the wording of the definitionof ‘assertions’. This material is not specific to the UK and Ireland. It is notnecessary as guidance, because its inclusion has no significant effect on auditquality.

Footnote 3aThe footnote refers to paragraph A2-1 of ISA (UK and Ireland) 580. In ourcomments on that ISA we call for that paragraph’s omission. This material isnot specific to the UK and Ireland. It is not necessary as guidance, because itsinclusion has no significant effect on audit quality.


A very significant amount of supplementary guidance is proposed in a recentlyrevised ISA. In our view, the presence of such material (whether asrequirements or guidance) in the extant UK & Ireland standard is not in itselfsufficient justification for it now to be included. The volume of guidance onaccounting records is disproportionate to the importance of serviceorganisations in an audit. In the main, this material is not specific to the UKand Ireland. It is not necessary, because its inclusion has no significant effecton audit quality.

Paragraph 9(e) (and related guidance at A11-1 to A11-6, with footnote 6a)There is a proposed supplementary requirement relating to circumstances wherethe service organisation maintains all or part of a user entity’s accountingrecords. The requirement is in the context of obtaining an understanding of theuser entity in accordance with paragraph 11 of ISA (UK and Ireland) 315.

ISA (UK and Ireland) 315 itself contains no proposed supplementaryrequirement relating to accounting records. Neither is there any extra regulatoryrequirement applying only to accounting records maintained by a serviceorganisation. There is no justification for treating the matter in extant ISA (UKand Ireland) 402 as a ‘regulatory plus’. There is no basis for introducing,therefore, a requirement into ISA (UK and Ireland) 402.

Paragraphs A4-1 to A4-3 (and footnote 5a)The paragraphs provide guidance on compliance with law and regulations andrefer to the requirements of ISA (UK and Ireland) 250. There seems to be littlejustification for introducing supplementary guidance, as ISA 402 is recentlyrevised and it does not deal with such matters. It is sufficient for auditors toapply ISA (UK and Ireland) 250 appropriately to service organizations.

Paragraph A8-1 to A8-3The supplementary guidance is not specific to the UK and Ireland. It is notnecessary as guidance, because its inclusion has no significant effect on auditquality.


Footnotes 1 and 9The additional guidance on the UK and Ireland standard is welcome as it servesto give a paragraph reference equivalent to that in ISA 700.

Paragraph 14-1We see no significant impact on audit quality from this proposed requirement.

In addition to the reasons set out in our response concerning criteria forinclusion as a supplementary requirement, we consider that there would beduplication between requirements. ISA 450 requires a written representationthat the uncorrected misstatements are immaterial, individually and inaggregate, to the financial statements as a whole. A summary of such items isrequired be included in, or attached to, the written representation.

Clearly, this can be considered to be a written representation that the reason fornot correcting is that potential adjustments are not material. Any further reasonis secondary and hence of less relevance to the auditor.

Any auditor who is concerned that those charged with governance lackinformation on a proposed adjustment is at liberty to raise the matter directly.This facility is likely to generate a more considered and principles-basedapproach to the audit than, in effect, requiring the above summary of items tocontain boilerplate wording of further reasons for non-adjustment.

Paragraph A23-1This is not unique to the UK and Ireland. It is not necessary and should beremoved.


Footnotes 3a to 3cThese footnotes are concerned with the responsibilities of those charged withgovernance. As set out in our general comment on such matters, there is noneed for these footnotes.

Footnote 3dThis reference to additional UK and Ireland guidance is welcome.

Footnote 10aThis additional UK guidance is welcome. The reference to the footnote lacks theshading necessary to identify it as a national addition.



Title, paragraph 1-1, paragraph 3 and paragraphs A3-1 to A3-2For the reasons set out below, we see no significant impact on audit qualityfrom this proposed requirement. As a result, it should be removed.

The extension of the objective might be thought to be the equivalent of thecreation of a new ISA applying the requirements applicable to an initial auditengagement also in the circumstances of a continuing audit. International dueprocess concluded that there was no need for such requirements in relation to acontinuing engagement.

Paragraphs A 3 and A-4 act to make the requirements ‘subject to’ certainconditions:

‘A3-1. If a continuing auditor issued an unqualified report on thepreceding period’s financial statements and the audit of the currentperiod has not revealed any matters which cast doubt on those financialstatements, the procedures regarding opening balances need not extendbeyond ensuring that opening balances have been appropriately broughtforward and that current accounting policies have been consistentlyapplied.

A3-2. If a continuing auditor issued a modified opinion on the precedingperiod’s financial statements the auditor considers whether the matterwhich gave rise to the qualification has been resolved and properly dealtwith in the current period’s financial statements.’

A normal continuing audit will include proper consideration of the mattersreferred to in the two objectives of ISA 510. The audit is planned and executedin order to detect misstatements that materially affect the current period’sfinancial statements whether they originate from opening balances orelsewhere. The consistent application of accounting policies and properaccounting for any changes thereto are also addressed as a normal aspect ofthe current period’s audit. The continuing auditor will already have informationon their application in the prior period and will not need prompting to carry outprocedures designed to identity them as contemplated by ISA 510 in respect ofa period prior to an initial engagement.

Paragraph A5-1The additional guidance on the UK and Ireland ethical requirements iswelcome.

Paragraph A8The additional guidance on the UK and Ireland reporting examples is welcome.

Footnote 5aThe additional guidance on the UK and Ireland legal position is welcome. Theconstruction ’unless prohibited by law or regulation’ occurs in several ISAs, forexample:

ISA (UK and Ireland) 200, paragraph A73ISA (UK and Ireland) 260, paragraph A6ISA (UK and Ireland) 300, paragraph A20 (first bullet point)ISA (UK and Ireland) 450, paragraphs 8 and 12ISA (UK and Ireland) 510, paragraph A8(b)ISA (UK and Ireland) 710, paragraph 19(c)

We suggest that the APB considers whether, and to what extent, guidance canbe added to clarify the legal position in the above instances. Priority might begiven to clarifying requirements rather than guidance.

Illustrations of Auditors’ Reports with Modified OpinionsWe welcome the reference to additional UK and Ireland guidance and theclarification that the illustrations have not been tailored for the UK and Ireland.


Paragraph A12(e)This guidance is not specific to the UK and Ireland and should be removed.

Paragraph A17-1This guidance is not specific to the UK and Ireland and should be removed.



Footnote 3aThe additional guidance on the UK and Ireland standard is welcome as it servesto give a paragraph reference equivalent to that in ISA 700.

Appendix paragraph 1-1The additional guidance merely states the obvious without providing detailedguidance relating to the UK and Ireland. It is unnecessary and should bedeleted.


Footnote 3aWhile we appreciate that the proposed ISA (UK and Ireland) replaces twoexisting versions, one for IAS 24 and one for FRS 8, the additional guidance,nevertheless, merely states the obvious without providing further guidancerelating to the UK and Ireland. As drafted, it is unnecessary and could bedeleted. We suggest, however, that guidance could usefully be added toindicate that, as a result, there will ordinarily in the UK and Ireland be no needto apply aspects of the standard relating to circumstances where the applicablefinancial reporting framework establishes minimal or no related party requirements.

Footnotes 12 and 17The additional guidance on the UK and Ireland standard is welcome as it servesto give a paragraph references equivalent to those in ISA 700.

Paragraph 25(a)The reference to paragraphs A47 and A7-1 is incorrect because of the omissionfrom the latter of the number ‘4’. The correct reference should be to paragraphsA47 and A47-1. However, please refer to our comments on paragraph A47-1below.

Paragraph A47-1We do not think that this guidance on only one aspect of the UK and Irelandcircumstances is worthwhile. We do not believe that the fact that the matterwas previously a requirement ‘plus’ is sufficient justification on its own forpresenting it as guidance. The need for specific enquiry and corroboration arenatural aspects of the audit process and would be considered whether or notthis guidance was included. If it is felt advisable to stress the requirement fordisclosure of a controlling entity, that could be done in relation to the matter wediscuss above in relation to footnote a3.

Paragraph A49-1The supplementary guidance proposed is at a very detailed procedural level and isnot specific to the UK and Ireland. We see little justification for its inclusion.



Footnote 3aThe footnote is concerned with the responsibilities of those charged withgovernance. As set out in our general comment on such matters, there is noneed for this footnote. If such references remain, this particular ISA illustratesthe problem of footnotes being applied to some, but not all, occurrences ofreferences to management and the financial statements. For example,paragraph 14(c) is not footnoted: how is the auditor to interpret this? Shouldinquiries under 14(c) be directed to management unless a footnote is present?

Paragraphs 12 and 13In some places, guidance on UK and Ireland law and regulation has been added(eg footnote 5a). There is scope also in relation to these paragraphs to indicatehow they apply in the UK and Ireland.

Footnote 5aThe additional guidance on the UK and Ireland legal requirements is welcome.The footnote should indicate that it is only relevant where the audited entity is aUK or Ireland registered company.

Footnote 5bThe footnote is concerned with the responsibilities of those charged withgovernance. As set out in our general comment on such matters, there is noneed for this footnote.

Footnote 7The supplementary guidance merely repeats what is in ISA (UK and Ireland)200 at the paragraph reference provided by the footnote. This information is notneeded in two places and should be removed from this footnote.


Footnote 8aCiting ISA (UK and Ireland) 210, paragraph A11 refers to the agreement of theterms of the audit engagement, which include the agreement of management toinform the auditor. Footnote 8a makes an unequivocal statement that in the UKand Ireland the responsibility is that of those charged with governance (notmanagement). Paragraph 10(c) of ISA 210 notes that one of the matters to beagreed as part of the terms of the engagement is ‘The responsibilities ofmanagement’. There is no footnote to paragraph 10(c) to indicate that‘management’ is anything other than management. Accordingly, footnote 8a isfactually incorrect.

It could be argued that the footnoting in ISA (UK and Ireland) 210 should beinterpreted differently, but we wish to use this only to illustrate the wider pointthat there are dangers of inconsistent application of the device of footnoting theUK and Ireland position of those charged with governance. Not only is itdifficult for auditors to determine precisely what is intended but wider,principles-based thought is deterred. Here it is important that those members ofmanagement who are not also those charged with governance have aresponsibility to inform auditors of facts that may affect the financialstatements.

Paragraphs A16-1 to A16-3The paragraphs contain welcome guidance but are written in a general way andshould instead present the UK and Ireland legal circumstances. Theseparagraphs illustrate (through using terms such as ‘AGM’) an underlyingassumption of the UK and Ireland supplementary material that the auditedentity is a company. That too should be corrected.

Paragraph A18-1The paragraph contains welcome guidance but is written in a general way andshould instead present the UK and Ireland legal circumstances. This paragraphillustrates (through using terms such as ‘members’) an underlying assumption ofthe UK and Ireland supplementary material that the audited entity is acompany. That too should be corrected. Footnote 9a takes the correct line byreferring to ‘The auditor of a limited company . . . ‘ so that it is confined to suchcircumstances. Paragraph A18-1 could do the same.



Paragraph 13-1The paragraph is written in general terms but a footnote refers only torequirements for (1) listed companies and (2) companies complying with UKFRS 18. We do not know whether the APB has any facts that would supportthe truth of this statement for other audited entities. It may be better to omit theparagraph altogether as it is not itself a requirement and does not constituteessential guidance. It does not contribute at all to audit quality.

Paragraph 13-2 (and paragraphs A10-1 to A10-6)We do not agree with the inclusion of this supplementary requirement. Inaddition to the reasons set out in our responses to the specific questions in theConsultation Paper, we consider that it substantially duplicates aspects of otherrequirements. Paragraph 12 requires the planning and performance ofprocedures specifically designed to evaluate management’s assessment of theentity’s ability to continue as a going concern and paragraph 14 essentiallyentails the auditor remaining alert to relevant matters throughout the audit.Given that paragraph 13-2 is concerned with ‘material matters which couldindicate concern about the entity's ability to continue as a going concern’, it isdifficult to envisage how so significant a matter would not be brought to light bythese requirements.

The guidance paragraphs A10-1 to A10-6 are voluminous. We do not believethat there is a need for such guidance in addition to that already present in theISA. It is not necessary for audit quality.

Paragraph 17-1We do not agree with the inclusion of this supplementary requirement. Inaddition to the reasons set out in our responses to the specific questions in theConsultation Paper, we consider that it is unnecessary because paragraph 8(c)of ISA (UK and Ireland) 230 Audit Documentation already requiresdocumentation of significant matters arising during the audit, the conclusionsreached thereon, and significant professional judgments made in reaching thoseconclusions.

Paragraph 17-2 and footnote 4bThe requirement in paragraph 17-2 is regarded by the APB as a‘legal/regulatory plus’. There is, however, no legal or regulatory requirementapplicable to all entities that may be audited in accordance with ISAs (UK andIreland) that requires this. If treated as an audit quality ‘plus’ we would suggestits exclusion for the reasons set out in our answers to the specific questions inthe Consultation Paper.

Paragraphs A21, A 23 and A24The supplementary guidance is welcome, but it is repeated. We suggest that itbe presented once: perhaps beneath the section heading Use of Going ConcernAssumption Appropriate but a Material Uncertainty Exists. Alternatively, afootnoted disclosure could be referenced from each paragraph.

Paragraph A27-1As the paragraph is only relevant to the auditor of a regulated financial entity,we suggest that it be moved to Section B of ISA (UK and Ireland) 250 wherereporting is already covered.

The paragraph only mentions legal advice obtained by those charged withgovernance. ‘Management’ ought also to be included here, as the audit shouldnot exclude consideration of legal advice merely because it was obtained bymanagement.


Paragraph 11-1We acknowledge the reason for including this paragraph as set out in theAddendum to the proposed clarified ISA (UK and Ireland).

Indeed, we note that while paragraphs 10 and 11 require the auditor to makerequests on management to provide written representations, paragraph 20refers to ‘the written representations required by paragraphs 10 and 11’ as ifthey were directly required rather than provided (or not) in response to arequired request from the auditor.

Rather than suggest that the requirement in paragraph 20 fails as its conditionprecedent does not exist (and hence there is no danger of a resulting disclaimer)it is necessary to refer to the objective of the auditor to respond appropriately inrespect of written representations. The auditor should make an appropriateresponse.

The representations prompted by paragraphs 10 and 11 cannot be interpretedas absolute fact but only as opinions of management (here we note that theAPB has not sought to alter the term fully to ‘those charged with governance’).As such, whether or not non-specific qualifying language is used, the auditor’sassessment is the same and (assuming no intention otherwise) there will be noneed to ‘automatically disclaim’ just because of the form of words used. This isalready noted in paragraph A5.

Consequently, paragraph 11-1 is not necessary. The concern of the APB isbetter addressed through appropriate training and implementation instead ofadding material to the requirements section of an international standard.

Paragraph A2-1The paragraph is concerned with the responsibilities of those charged withgovernance. As set out in our general comment on such matters, there is noneed for this paragraph.


Paragraph A7-1The paragraph may be ‘helpful’ but is should be removed as it is neither specificto the UK and Ireland nor is it necessary to ensure that the requirementsconcerned are met.

Paragraph A8-1The paragraph can be accused of ‘stating the obvious’ and its second halfmerely repeats material already present in paragraph 8A. It is neither specific tothe UK and Ireland nor is it necessary to ensure that the requirementsconcerned are met. It should be removed.

Paragraph A22-1 and footnote 7aThe additional guidance on the UK and Ireland legal requirements is welcomebut the paragraph provides this in relation to the timing of communication andalso suggests that the time might be right to issue a reminder about criminaloffences. This latter guidance is not necessary to ensure that the requirementsconcerned are met. It should be removed.

Paragraph A27The third bullet point is additional guidance, which relates back to the use ofqualifying language in relation to the representations requested under paragraph11(b). The point is not well positioned, as it is in a list of ‘examples of matterswhere the underlying reason may affect the auditors report’.

Given the comments above on other aspects of representations, we suggest thatthis guidance is not necessary to ensure that the requirements concerned aremet in the UK and Ireland. It should be removed.

Appendix 1As we have suggested that the supplementary requirement in paragraph 14-1 ofISA (UK and Ireland) 450 should be removed, we also suggest that for therelated cross-reference here.

Appendix 2We welcome the clarification that the illustrative representation letter has notbeen tailored for the UK and Ireland. The paragraph contains a ‘typo’ (a missing‘the’): ‘the auditor has regard to manner’, should be ‘the auditor has regard tothe manner’.


Paragraph A1-1The paragraph ‘states the obvious’ and is not necessary.

Paragraph A14-1 and footnote 15aThe additional guidance on the UK and Ireland statutory obligations and theAudit Regulations is welcome. Most of the paragraph is not specific to the UKand Ireland, however, and we question whether it is necessary.

The paragraph contains a ‘typo’ (a double ‘and’) in a confused first sentence,where the words ‘in the UK and Ireland’ appear twice. We suggest that thissentence be rewritten.

The second sentence of the paragraph is too long and contains a non-specific‘them’. We suggest that it be simplified. The word ‘onto’ should be amended to‘on to’, which is correct in this context.

Footnote 15a closes with a reference to the current ISA (UK and Ireland) 600.This should be removed.

Paragraph A19This reference to additional UK and Ireland guidance is welcome.

Paragraph A38This guidance is not specific to the UK and Ireland and should be removed. Thelist is only intended to be illustrative and the matter of capacity is of lessimportance than competence. This is an example of an extant UK and Ireland‘plus’ that has been converted into guidance. As set out in our answers to thespecific questions in the Consultation Paper, we do not accept this approach tojustifying the creation of supplementary guidance.

Footnote 22We welcome the clarification that the APB has not promulgated ISRE 2400 forapplication in the UK and Ireland. However, that does not prevent it from beingused by the component auditor if specified by the group engagement team. Forthe avoidance of doubt, it may be worth including a note on the effect (if any) ofthe decision not to promulgate ISRE 2400.

Paragraph A65-1 and footnote 24aIn the absence of any reasoning in the Addendum concerning retention of thisguidance, it is difficult to understand why it has been retained and why it ispositioned as it is. The paragraph and footnote should be removed as they areneither specific to the UK and Ireland, nor are they necessary to ensure that therequirements concerned are met.

Paragraph A66-1 and footnote 24bWe welcome the inclusion of this material. The implementation of the reviewrequirement in UK legislation has been done in an indirect way, through arequirement on the Recognised Supervisory Bodies to implement rules andpractices to ensure that group auditors record reviews. This is not immediatelyapparent from the text of the paragraph and footnote, but the effective outcomeis properly explained.

The implementation of the Statutory Audit Directive in Ireland will necessitatethe addition of related guidance.

Appendix 1We welcome the clarification that the example has not been tailored for the UKand Ireland and the references to suitable alternative examples.


Paragraph 2We note that the Addendum refers to the extension of the scope as aconsequence of implementing proposals in the Consultation Paper RevisedDraft Ethical Standards for Auditors issued for comment by the APB inMarch 2009.

In our response to that consultation, we agreed that the correct approach wasto provide guidance in auditing standards to which Ethical Standard 2 couldrefer. However, we recommended that, instead of developing a position for theUK and Ireland, the APB should wait until ISA 610 had been revised by theIAASB.

Consequently, we do not agree with the changed scope in paragraph 2.

Footnote 1aThe information on the Combined Code is only indirectly helpful (perhapsalerting readers to the fact that its content includes matters relating to internalaudit) and as such the footnote does not meet our criteria for inclusion.

Heading: Using Specific Work of the Internal AuditorsFor the reasons set out in relation to paragraph 2, we do not agree with theaddition of a cross-reference to paragraph 12.

Paragraph A6-1For the reasons set out in relation to paragraph 2, we do not agree with theinclusion of this paragraph.



Footnote 12aThe footnote is couched in terms of ‘may’ and ‘where appropriate’ and provideslittle guidance on circumstances where those charged with governance mayhave information that is not possessed by management that is relevant toevaluating the adequacy of the auditor’s expert’s work. Also, the footnote isconcerned with UK and Ireland position of those charged with governance, butsimilar considerations could apply in many jurisdictions. We do not believe thatthere is a sufficiently strong case to justify the inclusion of this footnote.


Footnote 3The note that the APB has not promulgated ISA 805 for application in the UKand Ireland is welcome.


Paragraph A15-1The additional guidance on the UK and Ireland requirements is welcome.


Text before paragraph A23We welcome the references to suitable alternative examples, but do not believethat it is necessary to repeat this information in the body of the ISA, as it is bestpresented in the Appendix.

AppendixWe welcome the clarification that the examples have not been tailored for theUK and Ireland and the references to suitable alternative illustrations.


Paragraphs 7 and 8We do not believe that it is necessary to add the words ‘on financial statements’as the existing term ‘Opinion’ is sufficiently clear in the context of this ISA.

If retained, the capitalisation should be conformed to that used for other namedparts of the report, as: ‘Opinion on Financial Statements’.

Footnote 1aWe see no need for this supplementary guidance, which merely summarises arequirement in another ISA. It should be removed.

Paragraph A4We welcome the references to suitable alternative examples, but do not believethat it is necessary to provide this information in the body of the ISA, as it isbest presented in Appendix 3.

Paragraph A8-1We note the explanation in the Addendum that supplementary guidance isintended to differentiate between the circumstances of paragraph A8 and therequirement in paragraph 19 of proposed clarified ISA (UK and Ireland) 700.

The material is not specific to the UK and Ireland, however, so we see nojustification for adding it to this ISA, especially as the circumstances in whichthere could be confusion would be rare.


Footnote 3aWe welcome the clarification that ISA 800 has not been promulgated forapplication in the UK and Ireland.

Appendix 2We welcome the clarification of the reference to Section A of ISA (UK andIreland) 720.

Appendix 3We welcome the clarification that the examples have not been tailored for theUK and Ireland and the references to suitable alternative illustrations.


Paragraph 1-1In our comments on ISA (UK and Ireland) 510 we suggested that its scopeshould not be extended to a continuing audit. As a result we suggest thatconsequential changes in ISA (UK and Ireland) 710 are unnecessary.

Paragraph 2-1The supplementary guidance will only be of use to those not familiar withfinancial reporting in the UK and Ireland, but on balance, we accept that itshould be present.

Paragraph A3-1This guidance is not specific to the UK and Ireland and should be removed.

Paragraphs A5 and A7We welcome the references to suitable alternative examples, but do not believethat it is necessary to provide this information in the body of the ISA. The closeproximity of these two paragraphs highlights the fact that this information isbest presented in the Appendix.

Paragraphs A7-1 and A7-2The supplementary guidance apparently clarifies the matter of law or regulationin paragraph A7. However, no authority is given for the statement. Theremainder of the guidance relates to what the auditor does or does not do and itis of little practical use because it refers to requirements and guidanceelsewhere in the same document. As a result, we remain unconvinced of theneed for this guidance.

AppendixWe welcome the clarification that the examples have not been tailored to theUK and Ireland and the references to suitable alternative examples.

ISA (UK AND IRELAND) 720 SECTION A

GenerallyThere is a relatively large amount of supplementary guidance extending to acomplete appendix on electronic publication of the auditor’s report.

While is it helpful to indicate whether some options are, or are not, relevant tothe UK and Ireland (for example, paragraphs 11 to 13), the resulting standardis too heavily amended to be consistent with an overall intention to convergewith international standards. Had the criteria been much stricter as we proposein our answers to the specific questions in the Consultation Paper the documentwould have been more appropriate. We do not feel in the circumstances that itis worth, in this instance, providing comprehensive detailed comments onindividual additions.

Paragraph 16-1We do not agree with the inclusion of this requirement. The requirement in theparticular circumstances is that ‘the auditor shall consider’ including an OtherMatter paragraph. The need to take (rather than consider) appropriate action isalready required by paragraph 16. The requirements relating to an Other Matterparagraphs are in ISA (UK and Ireland) 706, which includes guidance oncircumstances in which an other matter paragraph may be necessary. If thematter is considered to be important it could be included as additionalguidance.

If the paragraph remains, the following matters should be addressed. Theparagraph refers to ‘the entity’ rather than either continuing reference tomanagement or introducing mention of those charged with governance. Theparagraph also uses the plural form ‘Other Matters’, whereas ISA (UK andIreland) 706 establishes that the term is employed in the singular, as in ‘anOther Matter paragraph’.

ISQC (UK AND IRELAND) 1

Footnote 1aThe reference to the APB’s Glossary of Terms is welcome. It is important thatthe APB Glossary is more than just ‘based on’ that used internationally. As faras possible, the terms and definitions must be the same. We note that theGlossary has not been exposed for comment, other than through exposure of theterms in the definitions section of each individual pronouncements, which weassume will be consolidated into the Glossary.

Paragraph 12 and footnote 2aWe welcome the supplementary guidance on ethical requirements in the UKand Ireland. Please also refer to our comments in relation to paragraph 14-1 ofISA (UK and Ireland) 200 (reproduced below).




Footnotes 3 and 4In footnote 3, the additional cross-reference to footnote 2a is welcome but infootnote 4 a better cross-reference would be to footnote 1a, as that is where thepoint is made that the definitions relevant to ISA (UK and Ireland) are found inthe APB’s Glossary of Terms (if indeed it is the APB’s intention to include theterm ‘key audit partner’ – if not, the reference to footnote 2a is correct).

Footnote 4aThe additional guidance on Ethical Standard 3 is welcome. The footnote doesnot reflect the fact that the title of that pronouncement currently also includesthe word ‘revised’.

Footnote 4bThe additional guidance on Audit Regulations is welcome, subject to thecomments below.

The guidance is in need of amendment as it is both out of date and does notreflect the different regimes of the UK and Ireland Recognised SupervisoryBodies.

The current version is the 2008 Audit Regulations and Guidance, whichincorporates amendments up to Audit News no 44, September 2008.Reference to AR 3.08b should be to 3.11 in the 2008 Regulations; andreference to AR 7.06 should be to 6.06.

The publication Audit News is not relevant to all Recognised SupervisoryBodies. The 2008 Audit Regulations currently do not apply to the Republic ofIreland, due to the different timing of the implementation of the Statutory AuditDirective.

ACCA has a rule within its Code of Ethics and Conduct that states that auditworking papers should be retained for 7 years. This must be interpreted as 7years from the date the last working paper was generated, ie from the date ofsigning of the auditor’s report.

ACCA's equivalent to AR 6.06 is within the ACCA Global Practising Regulations.

In view of these differences and the potential complication of the footnote, wesuggest that it be made more generic. It could, for example simply be asfollows:

In the UK and Ireland, the auditor has regard to the specificrequirements of the auditor’s relevant professional body.

This would additionally simplify updating.

PROPOSED REVISED STATEMENT ON SCOPE AND AUTHORITY OFPRONOUNCEMENTS

We comment only on aspects of the document primarily affected by theadoption of the clarified ISAs. We have not sought to draw attention to someaspects that may change when the clarified ISAs (UK and Ireland) are finalised(for example in paragraph 9, the description of additional content).

Paragraph 6The clarified ISAs and ISQC 1 refer to ‘Application and Other ExplanatoryMaterial’ not ‘Guidance’; it would be appropriate to introduce the newterminology in paragraph 6.

Footnote 2The footnote should acknowledge that, in addition to the construction ‘theauditor shall’ there are requirements (indicated by ‘shall’) that are indirect, suchas in paragraph 6 of ISA (UK and Ireland) 706: ‘Such a paragraph shall referonly to information presented or disclosed in the financial statements.’

Paragraph12Please refer to our comments in relation to paragraph A14-1 of ISA (UK andIreland) 200 (reproduced below).




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