NEW REQUIREMENTS FOR THE AUDIT OF GROUP FINANCIAL STATEMENTS
The International Auditing and Assurance Standards Board (IAASB) issued new requirements designed to enhance the quality of audits of group financial statements. International Standard on Auditing (ISA) 600 (Revised and Redrafted) – Special Considerations – The Audit of Group Financial Statements (Including the Work of Component Auditors), assists the group engagement partner in taking responsibility for the direction, supervision and performance of the group audit and the issue of an auditor’s report that is appropriate in the circumstances.
The ISA is effective for audits of financial periods commencing on or after December 15, 2009. This date is consistent with the effective date for all the standards being redrafted under the IAASB’s Clarity project.
The ISA had been developed over a period of five years and influenced by the responses to three exposure drafts. The new ISA takes account of regulatory and standard-setting developments around the world, the interests of small entities, and the expectations of various stakeholders, including those represented on the IAASB Consultative Advisory Group.
FURTHER PROGRESS ON CLARIFICATION OF AUDITING STANDARDS
The IAASB approved for public comment the following exposure drafts of proposed International Standards on Auditing (ISA):
- ISA 505 (Revised and Redrafted) – External Confirmations
- ISA 620 (Revised and Redrafted) – Using the Work of an Auditor’s Expert
These standards have been revised and redrafted in accordance with the IAASB’s new drafting conventions designed to enhance the clarity of its pronouncements. The first exposure draft addresses concerns about the use and reliability of external confirmations as audit evidence. The second exposure draft proposes stricter requirements when an auditor uses an expert to obtain audit evidence.
Recent experience has indicated that external confirmations may not always be as reliable as expected as audit evidence, giving rise to requests for more rigorous requirements governing the auditor’s use of external confirmations. The auditor’s decision about whether to use external confirmation procedures is based on the identification and assessment of risks of material misstatement in accordance with other ISAs. Proposed ISA 505 (Revised and Redrafted) – External Confirmation, is directed at the effective performance of external confirmation procedures when the auditor determines that such procedures are an appropriate response to an assessed risk of material misstatement.
USE OF THE WORK OF AN AUDITOR’S EXPERT
The proposed ISA 620 (Revised and Redrafted) – Using the Work of an Auditor’s Expert deals with the auditor’s use of the work of a person or organisation possessing expertise in a field other than accounting or auditing, employed or engaged by the auditor to assist the auditor to obtain sufficient appropriate audit evidence. It places particular emphasis on the need for the auditor to evaluate the expert’s objectivity, and to establish a proper understanding with the expert of the expert’s responsibilities for the purposes of the audit.
The exposure drafts may be viewed on the IRBA website (www.irba.co.za).
IAASB CONSULTS ON PROPOSED FUTURE TECHNICAL STRATEGY
The International Auditing and Assurance Standards Board (IAASB) is seeking comments on its proposed future strategy as a basis for its work programme. The consultation paper proposes that the
IAASB’s future strategy focuses on:
- contributing to the effective operation of the world’s capital markets;
- assisting with the implementation of standards; and
- addressing the needs of small and medium-sized enterprises.
The proposed strategy, developed after initial consultations, confirms the IAASB’s public interest role by responding to the needs of users of financial information by promoting the quality in auditors’ work. Recognising that the effective operation of the world’s capital markets remains a matter of high public interest, the IAASB intends to continue to make auditing standards its first priority. A significant theme arising from the initial consultations has been the need to encourage effective implementation of the International Standards on Auditing (ISAs).
IAASB consults on Proposed Future Strategy and recognises the importance of this. It is also proposing to not issue any new auditing standards until auditors have had two years experience in applying the standards redrafted under the Clarity project, which is due for completion later this year.
Over the past few years, the focus of the IAASB has been on the development of high quality ISAs that are accepted globally and that facilitate convergence. This included significant revisions to the audit approach to risk assessment, together with responses to accounting developments such as the greater use of fair values in financial reporting and enhanced audit requirements for group audits and using the work of experts. Furthermore, efforts to enhance the consistent application of the standards around the world gave rise to a project to improve the clarity of ISAs.
The IAASB plans to complete the Clarity and other current projects by the end of 2008. To prepare for the period after 2008, the IAASB embarked on an extensive consultation process to obtain the widest possible input to determining its future strategy and to gauge the needs and concerns of the public and the profession. This consultation paper forms the final stage of the consultation process. It presents the proposed strategy for 2009 – 2011, possible actions to implement the proposed strategy and the basis for those actions. The proposed strategy and possible actions, amended in the light of comment received, will form the basis for the IAASB’s work programme for 2009 – 2011.
As a result of this project, 21 extant ISAs will have been fully revised or updated and redrafted in the past five years and the remaining 11 will have been redrafted in accordance with the new conventions, providing more clarity as to their requirements and thereby contributing to improving the consistency of their application.
It is important that all those with responsibility for implementation activities consider these as early as it is practicable. National standards setters, legislators and others involved in setting standards have been following the development of the ISAs and contributing to the process by commenting on exposure drafts. They will, therefore, be well placed to consider adoption or convergence plans that maximise the implementation period for auditors. IFAC member bodies and audit practitioners, who have similarly been following the process, will want to consider what continuing professional development courses or other training materials need to be developed. Audit practitioners will also need to consider the extent to which the new requirements within the ISAs call for amendments to current audit programmes and procedures.
The IAASB is releasing the final redrafted ISAs as they are approved by the Board and after the Public Interest Oversight Board has provided its confirmation that due process has been followed in the development of each standard. The IAASB believes that publication of the ISAs in this way will assist in their translation, adoption and implementation. The IAASB accepts that there is a possibility of conforming changes being necessary to released ISAs as other ISAs are redrafted, although this process will be completed before publication of the set of final clarified ISAs later this year. Any such changes are not expected to change the substance of the ISAs already approved, although they may have a minor effect on their content.
The IAASB strongly cautions against delay in considering implementation issues, and it reminds users that compliance with ISAs may only be claimed when the auditor has complied with all currently effective ISAs relevant to the audit.
EFFECTIVE DATE FOR ITS CLARIFIED INTERNATIONAL STANDARDS
IAASB determined that its complete set of ISAs will be effective for audits of financial statements for periods beginning on or after 15 December 2009. The IAASB hopes to eliminate uncertainty about when the new standards will apply. This will allow standard setters, regulators and auditors to plan for the adoption and implementation of the standards.
The date may seem a long way off, but there is much to be done to ensure that implementation is smooth. In setting the date, consideration was given to the desire to balance the benefits received from improvements in the standards as soon as practicable against the necessity for implementation to be effective.
The IAASB believes that this effective date appropriately responds to requests it has received from stakeholders to make the implementation period for the clarified ISAs longer than provisionally proposed.
In considering these requests, the IAASB recognised that:
- it is in the public interest to give the more than 100 jurisdictions around the world that use ISAs or have based their national standards on ISAs, the opportunity to be fully compliant with the newly drafted ISAs in accordance with their effective date;
- a number of jurisdictions are considering introducing ISAs for the first time; experiences in many countries have suggested that an appropriate imple-mentation period is necessary;
- it is highly desirable that jurisdictions using ISAs should all adopt the clarified ISAs simultaneously. This will aid in mutual recognition of audits in cross border filings; and
- a significant number of the ISAs, including some that have been substantively revised, will be finalised in clarified form in the latter half of 2008 and all will be effective at the same time.
Accordingly, the IAASB has concluded that the revised effective date allows for a reasonable period that stakeholders can use for further adoption or convergence, training and implementation activities.
Final standards are being made available as soon as they have been approved by IAASB and, in respect of appropriate due process, by the Public Interest Oversight Board. This is intended to allow all concerned to take the necessary steps for effective implementation, including national adoption, translation, amendment of manuals and processes and training. Everyone has been urged to take advantage of the time available for implementation to ensure that it is a success.
For more information about the IAASB, visit the home page at www.iaasb.org.
ACCOUNTING STANDARDS BOARD
Latest standards, exposure drafts, discussion papers and updates of the Board are available and can be viewed at (www.asb.co.za).
EXCHANGE CONTROL CIRCULAR
The Exchange Control department of the South African Reserve Bank (EXCON) has issued Exchange Control Circular No.24/2007 – Inward Foreign Loans. This circular advises that with effect from 1 October 2007, Authorised Dealers may approve applications by residents who are not ‘affected persons’ as defined in Exchange Control Regulation 1, to avail of inward foreign loans and foreign trade finance facilities from non-resident parties subject to the specific criteria applicable to inward foreign loans being adhered to and that such loans are recorded via the Loan Reporting System.
Loans to affected persons and loans that do not comply with the specific criteria applicable to inward foreign loans must still be submitted to EXCON for consideration.
Section I.3 of the Exchange Control Rulings has been updated accordingly.
Please direct any specific queries regarding the Exchange Control Circulars or Rulings to firstname.lastname@example.org.
WHAT’S NEW AT SARS?
The latest updates can be viewed on the SARS website (www.sars.gov.za).
TAX CONCERNS ADDRESSED
|MEMBERS CONCERNS & QUERIES|
|WHAT SARS COMMUNICATED|
|Trusts returns can’t be e-filed.|
|The e-filing functionality will be available shortly.|
|You must have a minimum of 25 trust clients in order to register for e-filing.|
|This is patently not correct – there is no number of minimum clients in order to qualify for e-filing.|
|Why have no IT14s been received? Will SARS still be mailing out IT14s?|
|SARS will not be mailing out IT14s. Copies can be downloaded from www.sarsefiling.co.za for electronic completion or obtained from your nearest office.|
|IT14s can’t be submitted using e-filing|
|The e-filing functionality will be available shortly.|
|0860 709 709, the number for e-filing queries does not work.|
|We have indicated on a number of occasions that e-filing queries should be directed to our dedicated practitioners call centre at 0860 12 12 19.|
|Errors on returns can’t be corrected manually, and can only be submitted online.|
|This is not correct. There are two options:|
|I can’t find the source code booklet anywhere on the SARS website.|
|The source code booklet is readily accessible.|
On our website at www.sars.gov.za, at the top of the screen there is a link to ‘Filing Season 2007’. If you then click on ‘Guides’ the source code booklet is the third item mentioned.
It is also available on the e-filing website at www.sarsefiling.co.za.
|We were told that refunds are due, but no monies have been paid out.|
|We anticipate that this will be resolved shortly.|
|e-Filing doesn’t recognise electronic payments, and when the taxable amount indicated by the taxpayer is lower than the amount on e-filing, the SARS system indicates that the taxpayer owes money.|
|This will be investigated.|
|SARS is not ready to implement new legislation regarding lump sums from pension or provident funds.|
|The necessary process has been put into place, and these will be processed.|
DRAFT REVENUE LAWS AMENDMENT BILL 2007
The Draft Revenue Laws Amendment Bill 2007 includes the proposed reduction in the secondary tax on companies’ rates, from 12.5% to 10% effective from 1 October 2007 (as announced in the Budget Speech).
Other amendments dealt with in this draft bill are:
- dividend definition and secondary tax on companies provisions;
- introduction of a proposed new section that deems the disposal of shares to be capital in nature in specified circumstances;
- amendments to the so called Corporate Rules; and
- a new section introducing capital allowances on commercial buildings, in specified circumstances.
The submission to the National Treasury and SARS on the Draft Revenue Laws Amendment Bill 2007 can be viewed on the SAICA website. (www.saica.co.za)
Subsequent to the issue of the original Draft Revenue Laws Amendment Bill significant changes have already been made, including:
- the amendment of the date affecting the capital gains tax effect of capital distributions from 1 July 2008 to 1 July 2011; and
- the exemption of repatriated foreign share capital distributions from the deemed sale provision under specific circumstances.
COMPREHENSIVE GUIDE TO SECONDARY TAX ON COMPANIES (ISSUE 2)
A Comprehensive Guide to Secondary Tax on Companies (Issue 2) has been issued by SARS. The purpose of this guide is to assist the public and SARS personnel in gaining a more in-depth understanding of secondary tax on companies. This guide reflects SARS interpretation of the law and reflects the law as amended by the Taxation Laws Amendment Act 8 of 2007, promulgated on 8 August 2007. The guide does not include any of the proposed amendments included in the Draft Revenue Laws Amendment Bill 2007.
This guide is available on the SARS website www.sars.co.za.
Technical queries: email@example.com
Ethics and Discipline queries:
Information Centre: firstname.lastname@example.org
Telephone: 011 621 6641
Telefax: 011 621 6819