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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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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)



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



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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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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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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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.


18/4214

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


AS-202:Agreeing the Terms of an Audit Engagement


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



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.


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


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


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


None


20/4216

ISA (NZ) 230

Audit Documentation


AS-204: Documentation





New Concepts

None


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


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

Audit of a Financial Report


None

New Concepts

None


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


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


None

New Concepts

None


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.


22/4218

(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.


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


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

the Audit





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.


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


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.


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).


24/4220

ISA (NZ) 300

Planning an Audit of Financial Statements


AS-300: Planning


None

New Concepts

None


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





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.


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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21

ISA (NZ) 320 and ISA (NZ) 450

Materiality in Planning and Performing an

Audit

Evaluation of Misstatements Identified Duringthe Audit


AS-320: Audit Materiality


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.


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.


26/4222

ISA (NZ) 330

The Auditors Responses to Assessed Risks


AS-402:Risks Assessments and Internal Control


None

New Concepts

None


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.


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


AS-404: Audit Considerations Relating to Entities Using Service

Organisations


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.


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


AS-500: Audit Evidence





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


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.


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.


28/4224

ISA (NZ) 501

Audit Evidence Specific Consideration for

Selected Items


AS-512: Enquiry Regarding Litigation and Claims

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

and Valuation of Inventory.


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


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.


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


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

Evidence - External Confirmations


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


AS-502: Initial Engagements Opening Balances


None

New Concepts

None


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.


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


AS-504:Analytical Procedures





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


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


AS-506:Audit Sampling


AS-506 applies to all audits

New Concepts

None


None

ISA (NZ) 540

Auditing Accounting Estimates, Including

Fair Value Accounting Estimates, and Related

Disclosures


AS-508:Audit of Accounting Estimates

AS-545:Auditing Fair Value Measurements and

Disclosures


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.


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