ISA Implementation May2010

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    INTERNATIONAL

    STANDARDS ONAUDITING (ISA)

    IMPLEMENTATION

    IN NEW ZEALAND

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    2010 Copyright New Zealand Institute of Chartered Accountants

    ISBN 978-1-877529-05-4

    This publication is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under

    the Copyright Act, no part shall be reproduced by any process without permission.

    Note that changes identified here represent significant differences between Auditing Standards (AS) and the ISAs (NZ). What is significant

    to any individual user will depend on the particular circumstances. Users of this comparison should note that it may not identify all the

    differences between the ASs and the ISAs (NZ) that are significant to a particular engagement. Therefore readers should perform their own

    review of the entire ISAs (NZ) and other relevant materials to understand how adoption of the ISAs in New Zealand will require changes to

    their current practices, policies or methodologies.

    Enquiries should be addressed to the publisher.

    Published in May 2010 by

    New Zealand Institute of Chartered Accountants

    PO Box 11 342

    Wellington 6142

    New Zealand

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    Contents

    Introduction 1

    Why were the ISAs adopted? 1

    Implications for auditors 1

    Mapping from Existing Auditing Standards to New International Standards on Auditing (New Zealand) 2

    Effective Dates 4

    Other resources 4

    Important acronyms 5

    Key differences 6

    Scope 6

    Determining obligations diagram

    Change of Focus 7

    Financial Reporting Framework 7

    Preconditions for an Audit/Premise on which an Audit is Conducted 7

    Specific differences 8

    Audit report 8

    Comparison of Audit Reports under AS-702 and ISA (NZ) 700 10

    Going Concern 12

    Procedures Regarding Litigation and Claims 12

    Consideration of Laws and Regulations in an Audit of Financial Statements 13

    Attendance at Physical Inventory Counting 13

    External Confirmations 13

    Group Audits 13

    Using the Work of Experts 13

    Comparative Information 13

    Summaries of main differences between ISAs and ASs 14

    ISA (NZ) 200: Overall Objective of the Independent Auditor and the Conduct of an Audit in 14Accordance with International Standards on Auditing (New Zealand)

    ISA (NZ) 210: Agreeing the Terms of Audit Engagements 15

    ISA (NZ) 220: Quality Control for an Audit of Financial Statements 15

    ISA (NZ) 230: Audit Documentation 16

    ISA (NZ) 240: The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements 16

    ISA (NZ) 250: Consideration of Laws and Regulations in an Audit of Financial Statements 17

    ISA (NZ) 260: Communication with Those Charged with Governance 19

    ISA (NZ) 265: Communicating Deficiencies in Internal Control to Those Charged with Governanceand Management 19

    ISA (NZ) 300: Planning an Audit of Financial Statements 20

    ISA (NZ) 315: Identifying and Assessing the Risks of Material Misstatement Through Understandingthe Entity and its Environment 20

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    ISA (NZ) 320: Materiality in Planning and Performing an Audit and ISA (NZ) 450: Evaluation ofMisstatements Identified During the Audit 21

    ISA (NZ) 330: The Auditors Responses to Assessed Risks 22

    ISA (NZ) 402: Audit Considerations Relating to an Entity Using a Service Organisation 22

    ISA (NZ) 500: Audit Evidence 23

    ISA (NZ) 501: Audit Evidence Specific Considerations for Selected Items 24

    ISA (NZ) 505: External Confirmations 25

    ISA (NZ) 510: Initial Audit Engagements - Opening Balances 25

    ISA (NZ) 520: Analytical Procedures 26

    ISA (NZ) 530: Audit Sampling 26

    ISA (NZ) 540: Auditing Accounting Estimates, Including Fair Value Accounting Estimates,and Related Disclosures 26

    ISA (NZ) 550: Related Parties 27

    ISA (NZ) 560: Subsequent Events 28ISA (NZ) 570: Going Concern 29

    ISA (NZ) 580: Written Representations 29

    ISA (NZ) 600: Special Considerations Audits of Group Financial Statements (including the Workof Component Auditors) 30

    ISA (NZ) 610: Using the Work of Internal Auditors 31

    ISA (NZ) 620: Using the Work of an Expert 31

    ISA (NZ) 700: Forming an Opinion and Reporting on Financial Statements 32

    ISA (NZ) 705: Modifications to the Opinion in the Independent Auditors Report 33

    ISA (NZ) 706: Emphasis of Matter Paragraphs and Other Matters Paragraphs in the IndependentAuditors Report 34

    ISA (NZ) 710: Comparative Information - Corresponding Figures and Comparative Financial Statements 35

    ISA (NZ) 720: The Auditors Responsibility in Relation to Other Information in Documents Containing AuditedFinancial Statements 36

    ISA (NZ) 800: Special Considerations - Audits of Financial Statements Prepared in Accordance with

    Special Purpose Frameworks 36

    ISA (NZ) 805: Special Considerations Audits of Single Financial Statements and Specific Elements, Accounts of

    Items of a Financial statement 36

    ISA (NZ) 810: Engagements to Report on Summary Financil Statements 37

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    1

    Introduction

    Why were the ISAs adopted?

    In 2005, the Professional Standards Board (PSB) carried out

    public consultation on the proposal to adopt the standards ofthe IAASB. The majority of respondents to that consultation

    recognised the benefits of achieving international convergence

    with international standards that are widely accepted on a global

    basis. Public confidence in audits and assurance engagements can

    be maximised through the application of national standards that

    reflect international best practice.

    The PSB therefore decided that:

    it would adopt the ISAs, the IAPSs and the ISQCs of the IAASB.

    ISQC-1 would be incorporated into a revised version of PS-1:

    Quality Control

    it would adopt the IAASBs International Framework for

    Assurance Engagements

    the approach to the adoption of the international standards

    would be primarily guided by the PSBs policy aim for adopting

    those standards, which is to enable members of the New

    Zealand Institute of Chartered Accountants to assert

    compliance with the international standardsin respect of their

    professional engagements undertaken in New Zealand

    the standards will be amended to make them applicable in New

    Zealand by making additions, deletions or other amendments

    to the extent permitted by the IAASBs guidance for achieving

    international convergence with International Standards while

    retaining all requirements in the International Standards.

    Consequently, the ISAs (NZ) have exactly the same structure,

    formatting and paragraph numbering as the ISAs. Further,compliance with ISAs (NZ) will automatically achieve compliance

    with ISAs and this may be asserted in the auditors report.

    What are the implications for auditors?

    For audits of financial statements for periods beginning on or after

    1 October 2009, all 36 International Standards on Auditing

    (New Zealand) (ISAs (NZ)) will be effective. This completes the

    phased replacement of the previous Auditing Standards (AS). One

    AS has been withdrawn (AS-210), there is one new Standard

    (ISA (NZ) 265) and two ISAs (NZ) include material that waspreviously in an Audit Guidance Statement (and was therefore

    non-mandatory).

    While there is significant overlap between the previous auditing

    standards (AS) there are important differences and members

    should ensure that their internal procedures are compliant with the

    new requirements under ISAs (NZ).

    1This states that National Standard Setters (NSS) will limit additions to an International Standard to the following:

    (a) National legal and regulatory requirements

    (b) Other requirements or guidance that are not inconsistent with the current requirements or guidance in the international standard.

    Deletions and other amendments will be limited to:

    (a) The elimination of options provided for in the international standard

    (b) Requirements of guidance, the application of which law or regulation does not permit, or which require amendment to be consistent with law orregulation.

    (c) Requirements or guidance where the international standard recognises that different practices may apply in different jurisdictions and the NSS is insuch a jurisdiction.

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    Mapping from Existing Auditing Standards to New International

    Standards on Auditing (New Zealand)

    Existing Standard ISA (NZ)

    AS-100 Objective of and General PrinciplesGoverning an Audit

    ISA (NZ)200 Overall Objectives of the Independent Auditor andthe Conduct of an Audit in Accordance with InternationalStandards on Auditing (NZ)

    AS-202 Agreeing the Terms of an AuditEngagement

    ISA (NZ) 210 Agreeing the Terms of Audit Engagements

    AS-204 Documentation ISA (NZ) 230 Audit Documentation

    AS-206 The Auditors Responsibility to ConsiderFraud in an Audit of a Financial Report

    ISA (NZ) 240 The Auditors Responsibilities Relating to Fraud in anAudit of Financial Statements

    AS-208 Consideration of Laws and Regulationsof an Audit

    ISA (NZ) 250 Consideration of Laws and Regulations in an Audit ofFinancial Statements

    AS-210 Auditing in a Computer InformationSystems Environment

    Withdrawn

    AS-710 Communication with the Entity onMatters Arising from the Audit

    ISA (NZ) 260 Communication with Those Charged with Governance

    New Standard IAS (NZ) 265 Communicating Deficiencies in Internal Control toThose Charged with Governance and Management

    AS-220 Quality Control for Audits of HistoricalFinancial Information

    ISA (NZ) 220 Quality Control for an Audit of Financial Statements

    AS-300 Planning ISA (NZ) 300 Planning of an Audit of Financial Statements

    AS-302 Knowledge of the Audit Environment ISA (NZ) 315 Identifying and Assessing the Risks of MaterialMisstatement through Understanding the Entity and ItsEnvironment

    AS-402 Risk Assessment and Internal Control ISA (NZ) 330 The Auditors Reponses to Assessed Risks

    AS-304 Audit Materiality ISA (NZ) 320 Materiality in Planning and Performing an Audit

    ISA (NZ) 450 Evaluation of Misstatements Identified during theAudit

    AS-404 Audit Considerations Relating to EntitiesUsing Service Organisations

    ISA (NZ) 402 Audit Considerations Relating to an Entity Using aService Organisation

    AS-500 Audit Evidence ISA (NZ) 500 Audit Evidence

    AS-512 Enquiry Regarding Litigation and Claims ISA(NZ)also contains

    materialfrom

    AGS-1004

    ISA (NZ) 501 Audit Evidence Specific Considerations for SelectedItems

    Containsmaterial

    fromAGS-1006

    ISA (NZ) 505 External Confirmations

    AS-502 Initial Engagements Opening Balances ISA (NZ) 510 Initial Audit Engagements Opening Balances

    AS-504 Analytical Procedures ISA (NZ) 520 Analytical Procedures

    AS-506 Audit Sampling ISA (NZ) 530 Audit Sampling

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    3

    AS-508 Auditing of Accounting Estimates ISA (NZ)540 Auditing Accounting Estimates, Including Fair Value

    Accounting Estimates, and Related Documents

    AS-545 Auditing Fair Value of Measurementsand Disclosures

    AS-510 Related Parties ISA (NZ)550 Related Parties

    AS-514 Management Representatives ISA (NZ)580 Written Representations

    AS-516Comparatives ISA (NZ) 710 Comparative Information Corresponding Figuresand Comparative Financial Statements

    AS-518 Other Information in a DocumentContaining an Audited Financial Report

    ISA (NZ) 720 The Auditors ResponsibilitiesRelating to Other Information in DocumentsContaining Audited Financial Statements

    AS-520 Going Concern ISA (NZ)570 Going Concern

    AS-522 Subsequent Events ISA (NZ)560 Subsequent EventsAS-602 Using the Work of An Other Auditor ISA (NZ)600 Special Considerations Audits of Group Financial

    Statements (Including the Work of ComponentAuditors)

    AS-604 Considering the Work of Internal Audit ISA (NZ)610 Using the Work of Internal Auditors

    AS-606 Using the Work of an Expert ISA (NZ)620 Using the Work of an Auditors Expert

    AS-702 The Audit Report on an Attest Audit ISA (NZ)700 Forming an Opinion and Reporting on FinancialStatements

    ISA (NZ)705 Modifications to the Opinion in the IndependentAuditors Report

    ISA (NZ)706 Emphasis of Matter Paragraphs and Other MatterParagraphs in the Independent Auditors Report

    ISA (NZ)810 Engagements to Report on Summary FinancialStatements

    ISA (NZ)800 Special Considerations Audits of Financial State-ments Prepared in Accordance with Special PurposeFrameworks

    ISA (NZ)805 Special Considerations Audits of FinancialStatements and Specific Elements, Accounts orItems of a Financial Statement

    Existing Standard ISA (NZ)

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    Other resources

    Readers may find the following of interest:

    ISA Implementation Resources

    Summaries of ISAs (NZ)

    Detailed comparisons of the differences between the Auditing Standards (ASs) and the International

    Standards on Auditing (ISAs)

    To access these documents visit www.nzica.com/eps

    Publications

    Auditing and Assurance Standards - a new publication that contains all of the International Standards on Auditing (NZ)

    and International Assurance Engagements (NZ) issued by NZICA as at January 2010.

    For more information on this publication visit www.nzica.com/publications

    Professional Development

    The e-learning Advanced Audit Series

    For more information on this series visit http://www.nzica.com/events/

    Summarised Timetable of Effective Dates for ISAs (NZ)

    Expected Effective Date

    Periods beginning on or after First full Year Period ends

    Batch 1

    240, 300, 315, 3301 January 2008 31 December 2008

    Batch 2

    230, 260, 600, 7201 July 2008 30 June 2009

    Batch 3

    540, 560, 5801 January 2009 31 December 2009

    Batch 4

    250, 550, 5701 January 2009 31 December 2009

    Batch 5200, 320, 450, 530, 610

    1 April 2009 31 March 2010

    Batch 6

    220, 500, 501, 505, 520, 6201 July 2009 30 June 2010

    Reporting

    700, 705, 706, 800, 805, 8101 October 2009 30 September 2010

    Batch 7

    210, 265, 402, 510, 7101 October 2009 30 September 2010

    Quality Control

    ISQC-1 PS-11 July 2010 30 June 2011

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    5

    IAASB International Auditing and

    Assurance Standards Board

    The Board of IFAC which is charged with serving the public interest by:

    setting, independently and under its own authority, high quality standards

    dealing with auditing, review, other assurance, quality control and related

    services, and

    facilitating the convergence of national and international standards.

    This contributes to enhanced quality and uniformity of practice in these areas

    throughout the world, and strengthened public confidence in financial reporting.

    Further information can be found on its website at: www.ifac.org/iaasb.

    IAPSs International Auditing Practice

    Statements

    IAPSs are issued by the IAASB to provide interpretive guidance and practical

    assistance to professional accountants in implementing ISAs and to promotegood practice.

    IFAC International Federation of

    Accountants

    IFAC is the global organisation for the accountancy profession. It has 159

    members and associates in 124 countries and jurisdictions and represents

    2.5 million accountants employed in public practice, industry and commerce,

    government and academia. Further information can be found on its website at:

    www.ifac.org.

    ISAs International Standards on

    Auditing

    Standards developed and approved by the IAASB to be applied when conducting

    an audit of financial statements comprising historical financial information and

    are to be adapted as necessary in the circumstances when applied to audits of

    other historical financial information.

    ISAs (NZ) International Standards on

    Auditing (New Zealand)

    Standards developed by the Professional Standards Board of NZICA and

    approved by the Council of NZICA to be applied by members when conducting

    audits of financial statements. These are based on ISAs with minimal

    amendments.

    ISAEs International Standards on

    Assurance Engagements

    Standards developed and approved by the IAASB to be applied when conducting

    assurance engagements other than audits and reviews of financial statements.

    ISAEs (NZ) International Standards on

    Assurance Engagements (New

    Zealand)

    Standards developed by the Professional Standards Board of NZICA and

    approved by the Council of NZICA to be applied by members when conducting

    assurance engagements other than audits and reviews of financial statements.

    ISQCs International Standards on Quality

    Control

    ISQCs are issued by the IAASB to establish standards regarding a firms

    responsibilities for its systems of quality control and are to be applied for all

    services falling under the IAASBs Engagement Standards.

    SAEs Standards on Assurance

    Engagements

    Standards developed by the Professional Standards Board of NZICA and

    approved by the Council of NZICA to be applied by members when conducting

    assurance engagements over specific subject matter.

    Important Acronyms

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    Key Differences

    Scope

    The most obvious difference is in the scope of the standards. The

    ISAs (NZ) apply to audits of financial statements and are to beadapted, as necessary in the circumstances, when applied to audits

    of other historical financial information. In contrast, of the 30 ASs,

    12 applied to all audits, 2 applied to attest audits and 16 applied

    to audits of financial reports. Therefore members performing

    certain types of audits, for example audits of compliance with

    regulations; environmental audits, audits of internal control; up

    until now have been required to comply with the 12 auditing

    standards which applied to all audits, covering topics such as

    planning, documentation, evidence, using experts and so on.

    Audits and other assurance engagements not specifically covered

    by the ISAs (NZ) should now be performed in compliance withInternational Standards on Assurance Engagement (New Zealand)

    (ISAE (NZ)) 3000, Assurance Engagements Other than Audits or

    Reviews of Historical Financial Information and, in the case of

    compliance audits, the Standard on Assurance Engagement (SAE)

    3100, Compliance Engagements. This is summarised in the

    diagram on the next page.

    1 Note that the Explanatory Foreword states at paragraph 14 that ISAs (NZ) are written in the context of an audit of financial statements comprisinghistorical financial information (financial statements) by an independent auditor. They should also be applied, as appropriate, to all audits.

    Determining Obligations when Performing Engagements

    Apply

    Framework for Assurance

    Yes No

    Will the opinion be given onhistorical

    financial information?

    Yes No

    Is it areasonable assurance engagement

    or alimited assurance engagement?

    Reasonable Limited

    Apply

    ISAs (NZ)

    Apply relevant

    Non-Assurance Standards

    [Currently on issue:

    APS-1 AES-1

    AES-2 SES-1

    SES-2 FAES]

    Apply

    RS-1

    Apply

    ISAE (NZ) 3000

    AND any relevant ISAE (NZ) or SAE

    (NZ)

    [Currently on issue: SAE 3100]

    Does the engagement involve the expression of an

    opinion designed to provide assuranceto

    intended users

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    7

    After Enron et al, there has been a clear change of focus in the

    ISAs. Assessment of risk is now a key part of the audit process.

    Some of the results of this have been:

    adoption of new terminology. For example:

    the risk of material misstatement this comprises inherent

    risk and control risk (inherent risk and control risk now receive

    much less mention in the standards)

    significant risk a risk that requires special audit

    consideration

    risk assessment procedures audit procedures performed

    to obtain an understanding of the entity and its environment,

    including its internal control, to assess the risks of material

    misstatement at the financial statement and assertion levels.There are now three types of audit procedures: risk assessment

    procedures, tests of controls and substantive procedures (which

    include tests of details and substantive analytical procedures).

    Analytical procedures can be used as risk assessment

    procedures or substantive analytical procedures.

    a clear emphasis on risk assessment. For example, the auditor

    was previously required to gain an understanding of the entity

    and its environment in order to identify and understand the

    events, transactions and practices that may have a significant

    effect on the audit subject matter. Now, the auditor is required

    to obtain an understanding of the entity including its internalcontrol, sufficient to identify and assess the risks of material

    misstatements and sufficient to design and perform further audit

    procedures.

    The main ISAs (NZ) reflecting this change are ISA (NZ) 315,

    Identifying and Assessing the Risks of Material Misstatement

    through Understanding the Entity and its Environment and ISA

    (NZ) 330, The Auditors Responses to Assessed Risks. As these

    standards have been effective for some time (for periods beginning

    on or after 1 January 2008), audit methodologies should already

    have been updated for this.

    Financial Reporting Framework

    As the ISAs have been developed to apply in many different

    jurisdictions, the term applicable financial reporting framework isused when referring to the framework adopted in the preparation

    of the financial statements. The ISAs also draw a distinction

    between a fair presentation framework and a compliance

    framework. A fair presentation framework is one with a fair

    presentation (or true and fair) override, that is the framework

    acknowledges that, in order to achieve fair presentation, additional

    disclosures may be required or it may be necessary to depart from

    a requirement in the framework. Many entities subject to audit

    in New Zealand are required to comply with generally accepted

    accounting practice in New Zealand and give a true and fair view

    of the matters to which the financial statements relate. This is anexample of a fair presentation framework.

    Preconditions for an Audit/Premise on which

    an Audit is Conducted

    Prior to accepting or continuing an engagement, the auditor is

    now required to establish whether the preconditions for an audit

    are present. This requires the auditor to (a) determine whether

    the financial reporting framework is acceptable and (b) obtain

    agreement from those charged with governance to the premise on

    which the audit is conducted.

    The premise is that those charged with governance have

    acknowledged and understand that they have various

    responsibilities in relation to the preparation of the financial

    statements, internal control and during the audit engagement.

    (See further detail of these responsibilities in ISA (NZ) 200).

    Change of focus

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    Specific Differences

    As each batch of proposed ISAs (NZ) were released for comment

    detailed comparisons of the proposed standards with the existing

    standards were made available on the New Zealand Institute of

    Chartered Accountants website. . Many of the differences noted in

    these comparisons are minor. However, there are some important

    changes of which members should be aware.

    Now (ISA (NZ) 700) Then (AS-702) Important Because:

    Date of the Audit Report

    Not explicitly stated, but shall be no earlierthan the date on which the auditor hasobtained sufficient appropriate audit evidenceon which to base the auditors opinion.

    Dated the date the auditor physically signs theaudit report (provided that this is after the datethat the governing body approves the financialstatements).

    The subsequent events review has toextend from the balance date untilthe date of the audit report.

    Terminology

    The auditors opinion is eitherunmodifiedormodified.

    The auditors opinion was either unqualifiedor qualified.

    Opinion paragraph in audit reportheaded differently.

    A modified opinion is either qualified,adverse,or a disclaimer of opinion.

    A qualified opinion was either except-for,adverseor a disclaimer of opinion.

    The auditor can add an

    Emphasis of Matter paragraph todraw users attention to a matter that isfundamental to their understanding of thefinancial statements; or

    an Other Matter paragraph to drawusers attention to a matter that is relevantto their understanding of the audit.

    The auditor could add an explanatoryparagraph to highlight matters relevant toa proper understanding of the basis of theopinion.

    The audit report now needs todistinguish between the two types ofparagraph.

    Format

    The title must indicate that it is the report ofan independent auditor.

    Required a title to distinguish the audit reportfrom other information published with it andstated that it may be appropriate to refer tothe audit report having been provided on anindependent basis.

    Title now should be:Independent Auditors Report (orsimilar).

    The order of paragraphs where an opinion ismodified or an emphasis of matter or othermatter paragraph is used is mandated as:

    Basis for modification paragraph

    Opinion paragraph

    (only opinions relating to the financialstatements)

    Emphasis of matter paragraph

    Other matter paragraph

    Other Reporting Responsibility

    Order was not specified.

    All matters reported included in the opinionparagraph.

    Auditors who have used a non-standard order, for example to putthe opinion first will no longer beable to do so.

    Statement on information andexplanations and opinion onaccounting records must now be in aseparate paragraph entitled Reporton Other Legal and RegulatoryRequirements.

    1. Audit Report

    This is perhaps the area of most significant change. Both

    the standard wording and the format of the audit report willchange. Some of the differences between the two standards are

    summarised in the following table.

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    9

    See the next page for a comparison of a typical audit report prepared under AS-702 and one prepared under ISA (NZ) 700.

    Now (ISA (NZ) 700) Then (AS-702) Important Because:

    Wording of Opinion

    Unless otherwise required by law or

    regulation, the opinion is required to use oneof the following phrases:

    The financial statements present fairly,

    in all material respects, in accordance

    with [the applicable financial reporting

    framework]; or

    The financial statements give a true and

    fair view of in accordance with [the

    applicable financial reporting framework].

    The audit report must contain a clear

    expression of opinion. There is no standardwording.

    Phrases such as fairly reflect can

    no longer be used in the opinion.Strictly speaking splitting the opinionbetween compliance with, say, gaapand fair presentation is no longerpermitted (unless legislation orregulation allows it).

    Note, however, that entities subjectto the Financial Reporting Act 1993(issuers and companies) are notaffected by this as Sections 16 and17 of that Act dictate the wording ofthe opinion.

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    Comparison of Audit Reports under AS-702 and ISA (NZ) 700

    Audit Report under AS-702 Audit Report

    under ISA (NZ) 700

    Comments

    Not-for-Profit Entity (not subject to any legislation or regulation)

    Audit Report

    To the Members of ABC Sports Club

    We have audited the financial report on

    pages ..... to ..... The financial report

    provides information about the past

    financial performance of the club and

    its financial position as at (date). This

    information is stated in accordance with

    the accounting policies set out on page

    .....

    Management Committees Respon-

    sibilities

    The Management Committee is

    responsible for the preparation of a

    financial report which fairly reflects

    the financial position of the club as

    at (balance date) and the results of

    operations and cash flows for the (period)

    ended on that date.

    Auditors Responsibilities

    It is our responsibility to express to you

    an independent opinion on the financial

    report presented by the Management

    Committee.

    Basis of Opinion

    An audit includes examining, on a test

    basis, evidence relevant to the amounts

    and disclosures in the financial report. It

    also includes assessing:

    the significant estimates and

    judgements made by the Management

    Committee in the preparation of the

    financial report; and

    INDEPENDENTAUDITORS REPORT

    [Appropriate Addressee]

    We have audited the financial statements

    of ABC Sports Club on pages to ,

    which comprise the balance sheet as

    at December 31, 20X1, and the income

    statement, and cash flow statement for

    the year then ended, and a summary of

    significant accounting policies and other

    explanatory information.

    Management Committees Responsibility

    for the Financial Statements

    The management committee is

    responsible for the preparation and fair

    presentation of these financial statements

    in accordance with generally accepted

    accounting practice in New Zealand; this

    includes the design, implementation

    and maintenance of internal

    control relevant to the preparationand fair presentation of financial

    statements that are free from material

    misstatement, whether due to fraud or

    error.

    Auditors Responsibility

    Our responsibility is to express an opinion

    on these financial statements based on

    our audit. We conducted our audit in

    accordance with International Standards

    on Auditing (New Zealand). Those

    standards require that we comply

    with ethical requirements and plan

    and perform the audit to obtain

    reasonable assurance about whether

    the financial statements are free

    from material misstatement.

    Slight change to heading

    Need to identify the title of each

    statement that comprises the financial

    statements

    Expanded statement of governing body

    responsibilities.

    Basis of Opinion section merged into

    Auditors Responsibilities

    Extra statement

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    11

    Audit Report under AS-702 Audit Report

    under ISA (NZ) 700

    Comments

    whether the accounting policies are

    appropriate to the clubs circumstances,

    consistently applied and adequately

    disclosed.

    We conducted our audit in accordance

    with New Zealand Auditing Standards.

    We planned and performed our audit

    so as to obtain all the information and

    explanations which we considered

    necessary in order to provide us with

    sufficient evidence to obtain reasonableassurance that the financial report is free

    from material misstatements, whether

    caused by fraud or error. In forming

    our opinion we also evaluated the

    overall adequacy of the presentation of

    information in the financial report. Other

    than in our capacity as auditor we have no

    relationship with, or interests in, the club.

    Unqualified Opinion

    In our opinion the financial report on

    pages ..... to ..... fairly reflects the financial

    position of ABC Sports Club as at (balance

    date) and the results of its operations and

    cash flows for the (period) ended on that

    date.

    Our audit was completed on ..... and our

    unqualified opinion is expressed as at that

    date.

    Auditor

    Address (city)

    An audit involves performing procedures

    to obtain audit evidence about the

    amounts and disclosures in the financial

    statements. The procedures selected

    depend on the auditors judgement,

    including the assessment of the risks of

    material misstatement of the financial

    statements, whether due to fraud or

    error. In making those risk assessments,

    the auditor considers internal control

    relevant to the entitys preparation and fair

    presentation of the financial statements in

    order to design audit procedures that are

    appropriate in the circumstances, but not

    for the purpose of expressing an opinion

    on the effectiveness of the entitys internal

    control. An audit also includes evaluating

    the appropriateness of accounting policies

    used and the reasonableness of accounting

    estimates, as well as evaluating the overall

    presentation of the financial statements.

    We believe that the audit evidence we

    have obtained is sufficient and appropriate

    to provide a basis for our audit opinion.

    Other than in our capacity as auditor we

    have no relationship with, or interests in,

    the club.

    Opinion

    In our opinion, the financial statements

    present fairly, in all material respects,

    (or give a true and fair view of)thefinancial position of ABC Sports Club as at

    December 31, 20X1, and (of)its financial

    performance and its cash flows for the

    year then ended in accordance with

    generally accepted accounting practice

    in New Zealand.

    [Auditors signature]

    [Date of the auditors report]

    [Auditors address]

    New statement required

    Different heading for Opinion section

    True and fair expanded

    Presentation of date is not specified in

    either Standard

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    Audit Report under AS-702 Audit Report

    under ISA (NZ) 700

    Comments

    Entity Subject to the Financial Reporting Act

    Unqualified Opinion

    We have obtained all the information and

    explanations we have required.

    In our opinion:

    proper accounting records have been

    kept by the company as far as appears

    from our examination of those records;

    and

    the financial report on

    pages ...... to ......:

    complies with generally accepted

    accounting practice in New Zealand;

    gives a true and fair view of the

    financial position of XYZ Limited and

    the results of its operations and cash

    flows for the (period) ended on that

    date.

    Opinion

    In our opinion the financial statements of

    XYZ Limited for the year ended December

    31, 20X1:

    comply with generally accepted

    accounting practice in New Zealand;

    give a true and fair view of the financial

    position of XYZ Limited as at December

    31, 20X1 and the results of its

    operations and cash flows for the year

    ended on that date.

    Other Reporting Responsibilities

    We have obtained all the information and

    explanations we have required.

    In our opinion proper accounting records

    have been kept by the company as far as

    appears from our examination of those

    records.

    Opinion split into two sections

    2. Going Concern

    AS-520 is more onerous than ISA (NZ) 570. For example AS-520

    requires the auditor to:

    request a written statement from management (governing body)

    confirming their view on whether or not the adoption of the

    going concern assumption is appropriate. This statement must

    specifically address any known matters that may indicate that

    the going concern assumption is not appropriate

    make enquiries of management and obtain sufficient

    appropriate audit evidence to support managements view

    plan and perform procedures specifically designed to identify

    material matters that could cast doubt on the appropriateness of

    the going concern assumption, and

    consider the period ending one year after the approval of the

    financial report.

    In contrast ISA (NZ) 570 only requires the auditor to specifically

    address going concern when events or conditions are identified

    which may cast doubt on the entitys ability to continue as a going

    concern. Further, the period of time that is relevant is one year

    from balance date.

    3.Procedures Regarding Litigation and Claims

    AS-512 is more extensive than the corresponding section of ISA

    (NZ) 501. Further AS-512 contains a lot of useful discussion.

    Significant differences in the relevant requirements are:

    ISA (NZ) 501 requires the auditor to carry out audit procedures

    in order to become aware of any litigation and claims that may

    result in material misstatement, whereas AS-512 requires the

    auditor to obtain sufficient appropriate audit evidence regarding

    whether all material legal matters have been identified AND

    the probability and estimated amount of any material revenueor expense arising from legal matters AND the adequacy of the

    accounting treatment of legal matters including disclosure

    AS-512 requires the auditor to request written representations

    from all solicitors with whom the entity has consulted on

    material legal matters. The auditor is required to qualify

    the audit opinion if unable to obtain these representations

    (limitation of scope). ISA (NZ) 501 only requires direct

    communication with the entitys legal counsel when the auditor

    assesses a risk of material misstatement regarding litigation or

    claims that have been identified or when the auditor believes

    they may exist. A scope limitation will exist if the entity refusesto give the auditor permission to communicate and a scope

    limitation may exist if the legal counsel refuses to respond.

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    13

    4. Consideration of Laws and Regulations in an Audit of

    Financial Statements

    AS-208 identifies three categories of laws and regulations and

    specifies the auditors responsibility in relation to each, whereas

    ISA (NZ) 250 only specifically refers to two categories. In relation

    to laws and regulations that are fundamental to operations,

    AS-208 requires the auditor to obtain sufficient appropriate audit

    evidence about compliance with these laws and regulations. ISA

    (NZ) 250 requires the auditor to perform procedures to help

    identify instances of non-compliance with this category specifically

    enquiring as to whether the entity is in compliance and inspecting

    correspondence with the relevant licensing or regulatory authority.

    AS-208 requires more conclusive evidence than enquiry and

    inspection of correspondence.

    5. Attendance at Physical Inventory Counting

    AGS-1004 being a Guidance Statement does not containmandatory requirements on the audit of inventory (existence

    and valuation). ISA (NZ) 501 contains standards relating to the

    audit evidence required regarding the existence of inventory. One

    of the most notable effects of this is that, under ISA (NZ) 501,

    attendance at the entitys physical inventory count is required

    unless impracticable. If the auditor is unable to attend on the date

    planned due to unforeseen circumstances, the auditor is required

    to take or observe some physical counts on an alternative date

    and perform audit procedures on intervening transactions. Where

    attendance is impracticable the auditor shall consider whether

    alternative procedures provide sufficient appropriate audit evidenceof existence and condition to conclude that the auditor need not

    make reference to a scope limitation.

    6. External Confirmations

    ISA (NZ) 505 mandates certain procedures to be followed when

    using external confirmation procedures. Material relating to

    external confirmations is currently in AGS-1006. The equivalent

    material, internationally, is in ISA (NZ) 505. Therefore what was

    guidance in AGS-1006 is now mandatory.

    7. Group Audits

    ISA (NZ) 600 replaces AS-602 which deals with using the work of

    an other auditor. However, in addition to specifying requirements

    when a group audit involves component auditors, it also specifies

    requirements in relation to obtaining sufficient appropriate audit

    evidence regarding the financial information of the components

    and the consolidation process itself. These are essentially new

    requirements.

    8. Using the Work of Experts

    AS-606 deals with both the use of experts (specialists engaged

    by the auditor or engaged or employed by the entity). An expert

    is defined to be someone possessing special skill, knowledge and

    experience in a particular field other than auditing. A specialist

    employed by the auditor is considered an assistant and therefore

    subject to the firms quality control procedures and processes.

    ISA (NZ) 620, on the other hand deals only with the use of

    auditors experts (specialists engaged or employed by the auditor).

    An expert now specifically excludes specialists in accounting.

    Managements experts are now dealt with in ISA (NZ) 500.

    9. Comparative Information

    AS-516 deals with the auditors responsibilities in relation to

    comparativeswhich is defined to be corresponding amounts or

    other disclosures for the preceding reporting period(s) presented

    for comparison purposes as part of the current periods audited

    information.

    ISA (NZ) 710 has expanded the coverage to include corresponding

    figures and comparative financial statements and has differing

    requirements for each type of comparative information.

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    Summaries of main differences between ISAs and ASs

    Note that changes identified here represent significant differences between Auditing Standards (AS) and the ISAs (NZ). What is

    significant to any individual user will depend on the particular circumstances. Users of this comparison should note that it may not

    identify all the differences between the ASs and the ISAs (NZ) that are significant to a particular engagement. Therefore readers

    should perform their own review of the entire ISAs (NZ) and other relevant materials to understand how adoption of the ISAs in NewZealand will require changes to their current practices, policies or methodologies.

    ISA (NZ) 200

    Overall Objectives of the Independent Auditor

    and the Conduct of an Audit in Accordance

    with International Standards on Auditing

    (New Zealand)

    Auditing Standard Replaced

    AS-100: Objective of and General Principles Governing an Audit

    ISA (NZ) 200 also contains material currently in the Explanatory

    Foreword to Engagement Standards relating to the authority

    attaching to ISAs (NZ) and the obligations of auditors who follow

    them along with more comprehensive explanations of relevant

    auditing concepts than in AS-100.

    Difference(s) in Scope

    AS-100 applies to all audits. ISA (NZ) 200 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    ISA (NZ) 200 also contains an extensive list of definitions that will

    apply to all ISAs (NZ).

    New Concepts

    ISA (NZ) 200 introduces the concepts of applicable financial

    reporting frameworkincludingfair presentation frameworksand

    compliance frameworks. These concepts pervade the ISAs (NZ)

    and affect, for example, the form and content of the audit report

    (ISA (NZ) 700 and ISA (NZ) 800).

    Applicable financial reporting framework the financial

    reporting framework adopted in the preparation of the financial

    statements that is acceptable in view of the nature of the entity

    and the objective of the financial statements, or that is required by

    law or regulation.

    Fair presentation framework a financial reporting framework

    that requires compliance with the requirements of the framework

    and:

    (i) Acknowledges explicitly or implicitly that, to achieve fair

    presentation of the financial statements, it may be

    necessary to provide disclosures beyond those specificallyrequired by the framework.

    (ii) Acknowledges explicitly that it may be necessary to

    depart from a requirement of the framework to

    achieve a fair presentation of the financial statements.

    Such departures are expected to be necessary only in

    extremely rare circumstances.

    Compliance framework a financial reporting framework thatrequires compliance with the requirements of the framework, but

    does not contain the acknowledgements in (i) or (ii) above.

    Note: under the Financial Reporting Act, the framework for

    reporting entities is a fair presentation frameworkwhile the

    framework for exempt companies is a compliance framework.

    ISA (NZ) 200 also introduces an explicit premiserelating to the

    responsibilities of those charged with governance, on which an

    audit is conducted.

    Changes to Requirements

    ISA (NZ) 200 spells out the obligation for auditors to comply with

    all ISAs (NZ) relevant to the audit, the importance of the objectives

    in each ISA (NZ) and the need to comply with the relevant

    requirements in each ISA (NZ). A departure from a relevant

    requirement is allowed in exceptional circumstances but the

    auditor still needs to perform alternative procedures to achieve the

    aim of the requirement.

    AS-100 has a mandatory paragraph which states that an auditor

    must not accept an audit engagement when a known limitation

    infringes on the auditors legal duties or ethical, or professional,

    responsibilities. This is now largely picked up in ISA (NZ) 210

    which states that the preconditions for an audit must be met if the

    engagement is to be accepted or continued.

    Other Differences/Points of Interest

    ISA (NZ) 200 has some useful discussion on:

    audit risk and materiality. Inherent risk, control risk and

    detection risk are defined

    the inherent limitations of an audit. The auditor is not expected

    to, and cannot, reduce audit risk to zero

    the meaning of professional scepticism.

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    15

    ISA (NZ) 210

    Agreeing the Terms of Audit Engagements

    Auditing Standard Replaced

    AS-202:Agreeing the Terms of an Audit Engagement

    Difference(s) in Scope

    AS-202 applied to all audits. ISA (NZ) 210 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    New Concepts

    Thepreconditions for an auditare defined to be the use of an

    acceptable financial reporting framework and the agreement of

    those charged with governance of the premise on which an audit

    is conducted.

    Changes to Requirements

    Preconditions for an Audit

    The auditor is required to establish whether the preconditions for

    an audit are present. In order to do so, the auditor is required to:

    (a) determine whether the financial reporting framework is

    acceptable and

    (b) obtain an agreement of those charged with governance

    that they acknowledge and understand their responsibility:

    (i) for the preparation of the financial statements in

    accordance with the applicable financial reporting

    framework

    (ii) for such internal control as is necessary to enable the

    preparation of financial statements that are free from

    material misstatement whether due to fraud or error

    (iii) to provide the auditor with

    a. access to all information of which management is aware

    that is relevant to the preparation of the financial

    statements such as records, documentation and othermatters;

    b. additional information that the auditor may request for the

    purpose of the audit; and

    c. unrestricted access to persons within the entity from whom

    the auditor determines it necessary to obtain

    audit evidence.

    If the preconditions for an audit are not present, the auditor is

    required to discuss the matter with those charged with governance

    and not accept the engagement if the financial reporting

    framework is unacceptable or the agreement in (b) above is not

    obtained.

    Agreeing on Engagement Terms

    ISA (NZ) 210 requires that the auditor and client agree on the

    terms of the engagement and record it in an audit engagement

    letter or other suitable form of written agreement. AS-210 only

    requires the auditor toseek agreement, and then consider the

    implications from non-acceptance. Further there are more specific

    requirements over what the agreement should cover in ISA (NZ)

    210 i.e.

    the objective and scope of the audit

    the responsibilities of the auditor

    the responsibilities of those charged with governance

    identification of the applicable financial reporting framework,

    and

    reference to the expected form and content of any reports to

    be issued.

    ISA (NZ) 220

    Quality Control for an Audit of Financial

    Statements

    Auditing Standard Replaced

    AS-220: Quality Control for Audits of Historical FinancialStatements.

    Difference(s) in Scope

    The engagement team is defined to specifically excludean

    auditors external expert engaged by the network firm. Therefore,

    the Standard does not cover the external expert. AS-220

    specifically includesexperts contracted by the firm in connection

    with the particular audit engagement in the engagement team and

    therefore AS-220 does cover external experts.

    New Concepts

    None

    Changes to Requirements

    None

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    ISA (NZ) 230

    Audit Documentation

    Auditing Standard Replaced

    AS-204: Documentation

    Difference(s) in Scope

    AS-204 applies to all audits. ISA (NZ) 230 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    New Concepts

    None

    Changes to Requirements

    ISA (NZ) 230 is much more prescriptive than AS-204. The auditoris required to prepare audit documentation that is sufficient to

    enable an experienced auditor, having no previous connection with

    the audit, to understand:

    the nature, timing and extent of the audit procedures performed

    to comply with ISAs (NZ)

    the results of the audit procedures performed and the audit

    evidence obtained, and

    significant matters arising during the audit, conclusions reached

    and significant professional judgements made in reaching those

    conclusions.

    Other specific requirements are that documentation shall include:

    who performed the audit work and the date it was completed and

    who reviewed the work and the date and extent of the review

    discussions of significant matters with management, those

    charged with governance and others

    how the auditor addressed any inconsistency between any

    information inconsistent with the auditors final conclusions

    regarding a significant matter

    where the auditor has judged it necessary to depart from a

    relevant requirement in an ISA (NZ), how the alternative audit

    procedures performed achieve the aim of the omitted requirement

    and the reasons for the departure.

    matters arising after the date of the auditors report to be

    documented.

    There are also specific requirements relating to the completion of

    the audit file. ISA (NZ) 230 requires assembly of the final audit file

    on a timely basis after the date of the auditors report. This would

    normally be no more than 60 days after the date of the report. After

    the assembly of the final audit file has been completed, the auditor

    shall not delete or discard audit documentation of any nature beforethe end of its retention period (or clearly document the reasons for

    making any modifications and when and by whom they were made

    and reviewed).

    ISA (NZ) 240

    The Auditors Responsibilities Relating to

    Fraud in an Audit of Financial Statements

    Auditing Standard Replaced

    AS-206: The Auditors Responsibility to Consider Fraud in an

    Audit of a Financial Report

    Difference(s) in Scope

    None

    New Concepts

    None

    Changes to Requirements

    Four previously grey-letter (should) paragraphs in AS-206 havebeen elevated to requirements in ISA (NZ) 240:

    Where conditions identified cause the auditor to believe that

    a document may not be authentic or that terms in a document

    have been modified but not disclosed to the auditor, the auditor

    must investigate further.

    Where responses to enquires of management or those charged

    with governance are inconsistent, the auditor must investigate

    the inconsistencies.

    If the auditor has identified or suspects a fraud, the auditor

    must determine whether there is a responsibility to report theoccurrence of suspicion to a party outside the entity.

    The auditor shall make a presumption that there are risks of

    fraud in revenue recognition. Where the auditor has determined

    that the presumption is not applicable in the circumstances of

    the engagement and, accordingly, has not identified revenue

    recognition as a risk of material misstatement due to fraud, the

    reasons must be included in the audit documentation.

    The requirement to test the appropriateness of journal entries and

    other adjustments and review accounting estimates for bias is

    more detailed in ISA (NZ) 240 than in AS-206.

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    17

    ISA (NZ) 250

    Consideration of Laws and Regulations in an

    Audit of Financial Statements

    Auditing Standard Replaced

    AS-208: Consideration of Laws and Regulations in an Audit

    Difference(s) in Scope

    None

    New Concepts

    None

    Changes to Requirements

    Categories of Laws and Regulations

    AS-208 identifies three categories of laws and regulations and

    specifies the auditors responsibility in relation to each, whereas

    ISA (NZ) 250 only specifically refers to two categories. Further, the

    auditors responsibilities are different in relation to these categories.

    (a) Those relating directly to the financial report.

    ISA (NZ) 250 AS-208

    Description

    Those generally recognised to have a direct effect on the

    determination of material amounts and disclosures in the

    financial statements, e.g. tax and pension laws and regulations.

    Those that directly affect the form or content of an entitys

    financial report or have requirements with which the governing

    body must comply in the preparation of the financial report, for

    example, the Financial Reporting Act 1993.

    Requirements

    The auditor shall obtain sufficient appropriate audit evidence

    regarding compliance with the provisions of these laws and

    regulations.

    The auditor must perform procedures to help identify instances of

    non-compliance specifically:

    enquiring as to whether the entity is in compliance; and

    inspecting correspondence with the relevant licensing or

    regulatory authority.

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    (b) Those fundamental to operations.

    ISA (NZ) 250 AS-208

    Description

    Laws and regulations - compliance with which may be

    fundamental to the operating aspects of the business, to an

    entitys ability to continue its business, or to avoid material

    penalties, for example an operating licence, regulatory solvency

    requirements, environmental regulations.

    Laws and regulations that may be expected to have a

    fundamental effect on the operations of an entity and thus could

    have financial consequences that are material to the financial

    report e.g. a law or licence, or a similar entitlement to carry on a

    trade or practice which forms a major part of an entitys activities,

    environmental protection for an entity involved in the production

    of chemicals. The consequences of non-compliance would result

    in material liabilities or would jeopardize the viability of that

    major part of the entity, or would affect the ability of the entity to

    continue to operate as a going concern.

    Requirements

    The auditor shall perform procedures to help identify instances of

    non-compliance, specifically:

    enquiring as to whether the entity is in compliance; and

    inspecting correspondence with the relevant licensing or

    regulatory authority.

    The auditor must obtain sufficient appropriate audit evidence

    about compliance with these laws and regulations. The

    auditor must have a sufficient understanding of those laws

    and regulations in order to consider them when auditing the

    assertions related to the determination of the amounts to be

    recorded and the disclosures to be made.

    Remain alert

    ISA (NZ) 250 has a requirement for the auditor to remain alert

    to the possibility that other audit procedures applied may bring

    instances of possible non-compliance to the auditors attention.

    This is grey-letter (should) in AS-208.

    Other Differences/Points of Interest

    AS-208 identifies a third category of laws and regulations other

    which includes such things as occupational health and safety, equal

    opportunity employment, environmental protection. In relation tothis category, the Standard states that in the absence of a specific

    requirement of the audit mandate, it is not practical to consider

    all such legislation when planning and assessing audit risk, and

    the auditor is not expected to have a detailed knowledge of them

    beyond that expected of a reasonable person.

    AS-208 has a paragraph which states that when non-compliance is

    detected, regardless of materiality, the auditor should consider the

    implications of relying on the integrity of management. This does

    not appear in ISA (NZ) 250.

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    19

    ISA (NZ) 260

    Communication with Those Charged with

    Governance

    Auditing Standard Replaced

    AS-710: Communication with the Entity on Matters Arising from

    the Audit

    Difference(s) in Scope

    AS-710 applies to all audits. ISA (NZ) 260 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    New Concepts

    Qualitative aspects of accounting practicesincludes such

    matters as appropriateness of accounting policies to thecircumstances of the entity, accounting estimates and financial

    statement disclosures.

    Changes to Requirements

    Matters to be Communicated

    ISA (NZ) 260 specifies certain matters that now must be

    communicated:

    the responsibilities of the auditor

    an overview of the planned scope and timing of the audit

    the auditors views about significant qualitative aspects of the

    entitys accounting practices, including accounting policies,

    accounting estimates and financial statement disclosures

    significant difficulties, if any, encountered during the audit

    significant issues communicated to management including the

    written representations the auditor is requesting

    other matters that are significant to the oversight of the financial

    reporting process, and

    in the case of issuers, a statement that the engagement team

    and others in the firm, and network firms have complied withall ethical requirements regarding independence (including total

    fees charged for audit and non-audit services during the period

    covered by the financial statements) and related safeguards that

    have been applied to deal with identified threats to independence.

    Most of these were grey-letter only in AS-710.

    Oral Communication

    AS-710 requires all significant matters communicated orally to be

    documented and a copy provided to the appropriate person within

    the entity to ensure that it appropriately reflects the conversation.

    ISA (NZ) 260 is not quite as prescriptive it requires the auditor to

    include them in the audit documentation along with when and to

    whom they were communicated.

    ISA (NZ) 265

    Communicating Deficiencies in Internal Con-

    trol to Those Charged with Governance and

    Management

    Auditing Standard Replaced

    None. AS-402 has a requirement to make management aware as

    soon as practical of material weaknesses in the design or operation

    of the accounting and internal control systems, which have come to

    the auditors attention.

    Difference(s) in Scope

    Not applicable

    New Concepts

    A significant deficiencyin internal control is defined to be adeficiency or combination of deficiencies in internal control that, in

    the auditors professional judgement, is of sufficient importance to

    merit the attention of those charged with governance.

    Additional Requirements

    Significant deficiencies identified must be communicated in writing to

    those charged with governance and management, on a timely basis.

    The following must be included in this communication:

    a description of the deficiencies and an explanation of their

    potential effects

    sufficient information to enable those charged with

    governance and management to understand the context of the

    communication. In particular, the auditor shall explain that

    the purpose of the audit was for the auditor to express an

    opinion on the financial statements

    the audit included consideration of internal control relevant to

    the preparation of the financial statements in order to design

    audit procedures that are appropriate in the circumstances, but

    not for the purpose of expressing an opinion on the effectiveness

    of internal control, and

    the matters being reported are limited to those deficiencies that

    the auditor has identified during the audit and that the auditor

    has concluded are of sufficient importance to merit being

    reported to those charged with governance.

    Other deficiencies in internal control identified during the audit

    must be communicated to management where they are of

    sufficient importance to merit managements attention (may be in

    writing or orally).

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    ISA (NZ) 300

    Planning an Audit of Financial Statements

    Auditing Standard Replaced

    AS-300: Planning

    Difference(s) in Scope

    None

    New Concepts

    None

    Changes to Requirements

    There is now a specific requirement stating that the engagement

    partner and other key members of the engagement team shall be

    involved in planning the audit, including planning and participatingin the discussion among engagement team members.

    There are also more detailed requirements for establishing the

    overall audit strategy and covering what shall be included in the

    audit plan. All of this detail is grey letter in AS-300.

    ISA (NZ) 315

    Identifying and Assessing the Risks of Material

    Misstatement through Understanding theEntity and its Environment

    Auditing Standards Replaced

    AS-302: Knowledge of the Audit Environment

    AS-402: Risk Assessment and Internal Control

    Difference(s) in Scope

    AS-302 applies to all audits. ISA (NZ) 315 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    New Concepts

    Audit risk is a function of the risk of material misstatement and

    detection risk. Inherent and control risk are the two components

    of the risk of material misstatement, but these terms are not used

    in this Standard.

    A significant riskis an identified and assessed risk of material

    misstatement that, in the auditors judgement, requires special

    audit consideration.

    Risk assessment proceduresare audit procedures performed

    to obtain an understanding of the entity and its environment,

    including internal control, to identify and assess the risks of

    material misstatement, whether due to fraud or error, at the

    financial statement and assertion levels. These must include

    enquiries of management and relevant others within the entity,

    analytical procedures and observation and inspection.

    Changes to Requirements

    New (or more detailed) Requirements in ISA (NZ) 315:

    Team Discussion

    There is now a requirement for a discussion to take place between

    the engagement partner and other key engagement team members

    at which the risk of material misstatement must be covered. In

    addition, the engagement partner must determine which matters

    are to be communicated to all other engagement team members.

    This is designed to ensure that all personnel on the audit are aware

    of relevant risk factors.

    Risk AssessmentThe auditor is specifically required to obtain an understanding

    of the entitys risk assessment process, in particular the entitys

    process for identifying and addressing relevant business risks. If

    the entity does not have such a process, the auditor is required

    to discuss with management and those charged with governance

    whether business risks relevant to financial reporting objectives

    have been identified and how they have been addressed. The

    absence of a documented risk process may represent a material

    weakness in the entitys internal control.

    The auditor is now required to specifically obtain an understanding

    of how the entity has responded to IT risks.

    The auditor is required to specifically consider how the entity

    monitorsinternal control over financial reporting.

    Significant Risks

    There are requirements in relation to significant risks.

    Other

    In respect of some risks, the auditor may judge that it is not

    possible or practicable to obtain sufficient appropriate audit

    evidence from substantive procedures. In such cases, the entitys

    controls over such risks are relevant to the audit and the auditorshall obtain an understanding of them.

    There is a specific requirement for the auditor to revise risk

    assessment if new information is obtained and to modify the

    planned audit procedures accordingly.

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    ISA (NZ) 320 and ISA (NZ) 450

    Materiality in Planning and Performing an

    Audit

    Evaluation of Misstatements Identified Duringthe Audit

    Auditing Standard Replaced

    AS-320: Audit Materiality

    Difference(s) in Scope

    None

    New Concepts

    Performance materialityis the amount or amounts set by the

    auditor at less than materiality for the financial statements as

    a whole to reduce to an appropriately low level the probability

    that the aggregate of uncorrected and undetected misstatements

    exceeds materiality for the financial statements as a whole. If

    applicable, it also refers to the amount or amounts set by the

    auditor at less than the materiality level or levels for particular

    classes of transactions, account balances or disclosures.

    Changes to Requirements

    The Requirements in the ISAs (NZ) are more detailed.

    Planning

    The auditor is now required to determinemateriality for thepurpose of assessing the risks of material misstatement as well

    as determining the nature, timing and extent of further audit

    procedures. AS-304 requires the auditor to consider audit materiality

    alongside risk. Materiality is required to be determined for the

    financial statements as a whole and, if necessary, for one or more

    particular classes of transactions, account balances or disclosures

    for which misstatements of lesser amounts than materiality for the

    financial statements as a whole could reasonably be expected to

    influence the economic decisions of users.

    Documentation

    Both ISAs (NZ) have detailed requirements for what amounts and

    factors need to be documented.

    Identified Misstatements

    ISA (NZ) 450 contains communication requirements relating

    to misstatements accumulated during the audit; uncorrected

    misstatements and the effect that they may have on the audit

    opinion; and the effect of uncorrected misstatements related to

    prior periods. In particular, the Standard requires the auditor to

    request that allmisstatements accumulated during the audit be

    corrected. If those charged with governance refuse to correct some

    or all of the misstatements, then the auditor is required to obtain

    an understanding of the reasons for not making the corrections

    and take that understanding into account when evaluating

    whether the financial statements as a whole are free from material

    misstatement.

    Prior to evaluating the effect of uncorrected misstatements, ISA

    (NZ) 450 requires the auditor to reassess materiality determined

    in accordance with ISA (NZ) 320 to confirm whether it remains

    appropriate in the context of the entitys actual financial results.

    ISA (NZ) 450 requires the auditor to request a written

    representation from those charged with governance whether they

    believe the effects of uncorrected misstatements are immaterial,

    individually and in aggregate, to the financial statements as a

    whole.

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    ISA (NZ) 330

    The Auditors Responses to Assessed Risks

    Auditing Standard Replaced

    AS-402:Risks Assessments and Internal Control

    Difference(s) in Scope

    None

    New Concepts

    None

    Changes to Requirements

    Testing Controls

    ISA (NZ) 330 requires the auditor to obtain more persuasive

    evidence about the operating effectiveness of controls the greater

    the reliance the auditor places on the control.

    ISA (NZ) 330 requires the auditor to consider whether the controls

    being tested are dependent on other controls (indirect controls). If

    so, the auditor must determine whether it is necessary to obtain

    audit evidence supporting the effective operation of the indirect

    controls.

    ISA (NZ) 330 allows the auditor to rely on evidence from a

    previous audit about the operating effectiveness of specific controls

    (not being controls over a significant risk) in certain limited

    circumstances and provided certain procedures are carried out.However, the auditor must test the controls at least once in every

    third audit and test some controls each audit.

    ISA (NZ) 330 requires the auditor to take into account

    misstatements detected by substantive procedures when evaluating

    the operating effectiveness of relevant controls.

    Mandatory Procedures

    There are now two specific procedures thatmust be carried out

    on each audit agree or reconcile the financial statements with

    the underlying accounting records and examining material journal

    entries and other adjustments made during the course of preparingthe financial statements.

    Further, there is now a requirement to perform audit procedures

    to evaluate whether the presentation of the financial statements,

    including the related disclosures, is in accordance with the

    applicable financial reporting framework.

    Documentation

    The documentation requirements are more detailed.

    Other Differences/Points of Interest

    ISA (NZ) 330 suggests that, in some cases, the auditor may findit impossible to design effective substantive procedures that

    by themselves provide sufficient appropriate audit evidence at

    the assertion level. This may occur when an entity conducts

    its business using IT and no documentation of transactions is

    produced or maintained, other than through the IT system. In such

    cases the auditor is required to perform tests of relevant controls.

    ISA (NZ) 402

    Audit Considerations Relating to an Entity Us-

    ing a Service Organisation

    Auditing Standard Replaced

    AS-404: Audit Considerations Relating to Entities Using Service

    Organisations

    Difference(s) in Scope

    None

    New Concepts

    Atype 1report, issued by the service organisation, comprises a

    description, prepared by the service organisation, of the service

    organisations system, control objectives and related controls

    together with a report by the auditor of the service organisation

    (the service auditor) expressing an opinion on the description and

    suitability of the design of the controls to achieve the specifiedcontrol objectives.

    A type 2 report compromises the elements of the type 1 report

    plus, in some cases, the operating effectiveness of the controls

    throughout a specified period may be included in the description.

    The auditors report includes a description of the service auditors

    tests of the controls and the results thereof.

    Changes to Requirements

    ISA (NZ) 402 has more detailed requirements when the auditor of

    the entity using the service organisation (the use auditor) seeks

    to rely on a type 1 or type 2 report. For example, the user auditorshall be satisfied as to the professional competence of the service

    auditor and their independence from the service organisation.

    The user auditor is required to enquire of management of the

    user entity whether the service organisation has reported to the

    user entity, or whether the user entity is otherwise aware of, any

    fraud, non-compliance with laws and regulations or uncorrected

    misstatements affecting the financial statements of the user entity.

    The user auditor must then evaluate how such matters affect

    the nature, timing and extent of the user auditors further audit

    procedures, including the effect on the user auditors conclusions

    and user auditors report.

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    ISA (NZ) 500

    Audit Evidence

    Auditing Standard Replaced

    AS-500: Audit Evidence

    Difference(s) in Scope

    AS-500 applies to all audits. ISA (NZ) 500 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    ISA (NZ) 500 covers audit evidence prepared using the work of an

    expert employed or engaged by the entity (a management expert).

    New Concepts

    None

    Changes to Requirements

    ISA (NZ) 500 specifically requires the auditor to consider the

    relevanceand reliability of the information to be used as audit

    evidence.

    ISA (NZ) 500 now has a requirement that, when designing tests of

    controls and tests of details, the auditor must determine means of

    selecting items for testing that are effective in meeting the purpose

    of the audit procedure. The means available for selecting items

    are identified as selecting all items (100% examination), selecting

    specific items and audit sampling. The first two means are covered

    in the application guidance to ISA (NZ) 500. Audit sampling is

    covered in ISA (NZ) 530.

    ISA (NZ) 500 has a specific requirement covering inconsistency

    in, or doubts over reliability of, audit evidence. If these exist, the

    auditor is required to determine what modifications or additions to

    audit procedures are necessary to resolve the matter and consider

    the effect, if any, on other matters of the audit.

    Other Differences/Points of Interest

    AS-500 lists the seven assertions embodied in the financial report

    as: existence, rights and obligations, occurrence, completeness,

    valuation, measurement, and presentation and disclosure.

    The assertions are now discussed in the application section of ISA

    (NZ) 315 and have been grouped into 3 categories:

    those relating to classes of transactions and events for the

    period under audit: occurrence, completeness, accuracy, cut-off

    and classifications.

    those relating to account balances at period end: existence,

    rights and obligations, completeness and, valuation and

    allocation.

    those relating to presentation and disclosure: occurrence

    and rights and obligations, completeness, classification and

    understandability, and accuracy and valuation.

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    ISA (NZ) 501

    Audit Evidence Specific Consideration for

    Selected Items

    Auditing Standard Replaced

    AS-512: Enquiry Regarding Litigation and Claims

    ISA (NZ) 501 also replaces AGS-1004: Audit Evidence Existence

    and Valuation of Inventory.

    Difference(s) in Scope

    The three areas covered by ISA (NZ) 501 are existence and condition

    of inventory, completeness of litigation and claims involving the

    entity, and presentation and disclosure of segment information in

    accordance with the applicable financial reporting framework.

    As noted above, material relating to the existence and conditionof inventory is currently covered in AGS-1004 (but guidance only)

    and material relating to the completeness of litigation and claims is

    currently covered in AS-512. The ASs and AGSs do not contain any

    requirements or guidance on the audit of segment information.

    New Concepts

    None

    Changes to Requirements

    Inventory

    ISA (NZ) 501 contains 5 paragraphs containing requirementsrelating to obtaining sufficient appropriate audit evidence

    regarding the existence and condition of inventory. These are all

    new requirements as AGS-1004 is a guidance statement. Under

    the ISA (NZ), the auditor is required to:

    attend the physical inventory count when inventory is material

    to the financial statements unless this is impracticable. At

    the physical count the auditor is to evaluate managements

    instructions and procedures for recording and controlling the

    results of the entitys physical inventory counting, observe

    the performance of managements count procedures, inspect

    the inventory and perform test counts. If attendance isimpracticable, the auditor is required to perform alternative

    audit procedures to obtain sufficient appropriate audit evidence

    regarding the existence and condition of inventory

    where inventory under the custody and control of a third party

    is material to the financial statements, the auditor is required to

    obtain evidence regarding the existence and condition of that

    inventory by performing one or both of: requesting confirmation

    from the third party as to the quantities and condition of

    inventory held on behalf of the entity; performing inspection or

    other audit procedures appropriate in the circumstances

    if physical inventory counting is conducted at a date other than

    the date of the financial statements, the auditor is required to

    also perform audit procedures to obtain audit evidence about

    whether changes in inventory between the count date and the

    date of the financial statements are properly recorded.

    Litigation and Claims

    In relation tolitigation and claims, AS-512 requires the auditor

    to request written representations from all solicitors with whom

    the entity has consulted on material legal matters. Under ISA (NZ)

    501, the auditor is only required to seek direct communication with

    the entitys external legal counsel if the auditor assesses a risk of

    material misstatement regarding litigation or claims that have been

    identified, or when audit procedures performed indicate that other

    material litigation may exist.

    Segment Reporting

    The one requirement paragraph relating to obtaining audit

    evidence regarding presentation and disclosure of segmentinformation is new. This requires the auditor to obtain an

    understanding of the methods used in determining segment

    information by obtaining an understanding of, evaluating and,

    where appropriate, testing the application of the methods used

    in determining segment information as well as performing

    analytical procedures or other audit procedures appropriate in the

    circumstances.

    Other Differences/Points of Interest

    As noted above, AGS-1004 also included material relating to the

    valuation of inventory and listed audit procedures relating to this.

    These are not included in the ISAs (NZ).

    AS-512 is much more extensive than ISA (NZ) 501 and the black

    letter paragraphs are more onerous.

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    ISA (NZ) 505

    External Confirmations

    Auditing Standard Replaced

    None. External confirmations are covered in AGS-1006:Audit

    Evidence - External Confirmations

    Difference(s) in Scope

    AGS-1006 applies to all audits (but was guidance only). ISA (NZ)

    505 applies only to audits of financial statements (adapted as

    necessary for audits of other historical financial information).

    New Concepts

    None

    Changes to RequirementsAll Requirements are new. The Standard deals with the auditors

    use of external confirmation procedures to obtain audit evidence.

    It does not requirethe use of external confirmations, but contains

    requirements when the auditor has made the decision to use

    external confirmation procedures. Requirements cover:

    the need to maintain control over external confirmation requests

    the situation where management refuses to allow the auditor to

    send a confirmation request

    the reliability of responses to confirmation requests

    non-responses to positive confirmation requests

    exceptions

    negative confirmations

    evaluating the evidence obtained.

    ISA (NZ) 510

    Initial Audit Engagements Opening Balances

    Auditing Standard Replaced

    AS-502: Initial Engagements Opening Balances

    Difference(s) in Scope

    None

    New Concepts

    None

    Changes to Requirements

    ISA (NZ) 510 is more specific as to how to ensure that the opening

    balances are not misstated. The auditor is required to:

    read the most recent financial statements and the predecessor

    auditors report for information relevant to opening balances.

    where the prior year financial statements were audited, review

    the predecessor auditors working papers to obtain evidence

    regarding the opening balances and/or

    evaluate whether audit procedures performed in the current

    period provide evidence relevant to the opening balances and/or

    performing specific audit procedures to obtain evidence

    regarding the opening balances.

    Other Differences/Points of Interest

    AS-502 imposes requirements on the predecessor auditor. They

    require the predecessor auditor to co-operate with the current

    auditor to the extent necessary to allow the current auditor to

    discharge their professional obligations and, specifically, to provide

    the current auditor with, at a minimum, working papers analysing

    the opening balance, schedules of any differences or errors and any

    unresolved issues, when requested by the current auditor. These

    requirements will no longer apply when

    ISA (NZ) 510 becomes effective.

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    ISA (NZ) 520

    Analytical Procedures

    Auditing Standard Replaced

    AS-504:Analytical Procedures

    Difference(s) in Scope

    AS-504 applies to all audits. ISA (NZ) 520 applies only to audits

    of financial statements (adapted as necessary for audits of other

    historical financial information).

    AS-504 states that analytical procedures must be applied at the

    planning stage of an audit to assist in understanding the audit

    environment and in identifying areas of potential risk. Material on

    the use of analytical procedures as risk assessment procedures is

    now included in ISA (NZ) 315.

    New Concepts

    None

    Changes to Requirements

    ISA (NZ) 520 requires that when analytical procedures identify

    fluctuations or relationships that are inconsistent with other

    relevant information or that differ from expected values by a

    significant amount, the auditor shall enquire of management

    and obtain audit evidence relevant to managements responses.

    AS-504 does not specifically require that the auditor enquire of

    management, although this is included in the guidance paragraphs.

    ISA (NZ) 530

    Audit Sampling

    Auditing Standard Replaced

    AS-506:Audit Sampling

    Difference(s) in Scope

    AS-506 applies to all audits

    New Concepts

    None

    Changes to Requirements

    None

    ISA (NZ) 540

    Auditing Accounting Estimates, Including

    Fair Value Accounting Estimates, and Related

    Disclosures

    Auditing Standard Replaced

    AS-508:Audit of Accounting Estimates

    AS-545:Auditing Fair Value Measurements and

    Disclosures

    Difference(s) in Scope

    None

    New Concepts

    Estimation uncertaintyis the susceptibility of an accounting

    estimate and related disclosures to an inherent lack of precision in

    its measurement.

    Management biasis the lack of neutrality by management and/or

    those charged with governance in the preparation of information.

    Changes to Requirements

    Review of previous estimates

    ISA (NZ) 540 requires the auditor to review the outcome of

    accounting estimates made in the prior period financial statements.

    This is consistent with AS-508 but it is not a requirement in AS-508.

    Estimation uncertainty and significant risks

    The auditor is required to evaluate the degree of