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7/25/2019 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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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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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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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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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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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