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audit changes in 2021
8 March 2021
While not much often changes in the world of auditing standards, there are some key developments to be aware of that impact periods commencing on or after 15th December 2019 (ie December 2020 year ends and beyond).
ISA 540 – Accounting estimates
Auditors are required to assess whether accounting estimates and related disclosures are reasonable or misstated. Greater emphasis is being placed on understanding accounting estimates and the related control environment, the risk assessment and significant judgements made by management.
ISA 570 – Going concern
This requires auditors to more robustly challenge the management’s assessment of going concern to thoroughly test the adequacy of the supporting evidence and evaluate the risk of management bias.
ISA 700 – Audit report
Auditors are now required to explain within the audit report the extent to which the audit was considered capable of detecting irregularities, including fraud. This aims to bridge the gap in expectations of what an auditor’s required to do, following recent high profile corporate failings.
What does this mean for you?
Ultimately, you should expect your audit team to be doing more work on accounting estimates and going concern. You may be asked for further in-depth information and be challenged on some of your assessments. Don’t take this personally, auditors are required to maintain professional scepticism and assess whether judgements made by management are reasonable.
With the uncertainty around the ongoing impact of COVID and Brexit, this is inevitablly leading to further input being required by management and the audit team to understand and assess the impact of this on the going concern assessment and any necessary disclosures.