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The issues of auditing disclosures have been recently considered by the International Auditing and Assurance Standards Board (IAASB)[1]. Various factors such as developments in Indian Financial Reporting Standards (IFRS) requirements, increased level of complexity and subjectivity involved in the preparation of information to be disclosed in financial statements, facilitated the consideration of issues of auditing disclosures. Auditing disclosures means the opinion expressed by the auditors on the financial statements as a whole. For expressing his opinion, an Auditor must obtain sufficient and appropriate proof concerning the disclosures made in financial statements.
The object of audit disclosures is to enhance the requirements in various International Standards of Auditing (ISAs), to make changes in the auditor’s approach and improve consistency in practices especially when it comes to addressing qualitative disclosures. Further, audit disclosure also clarifies the auditor’s work regarding disclosures, by providing additional guidance to assist auditors in applying the requirements relating to disclosures.
Table of Contents
Revision under this ISA has been made to the definition of financial statements. The revision specifies that the financial statements include related notes which ‘comprise a summary of significant accounting policies and other explanatory information’. As required by the IFRS, the notes to the financial statements contain both qualitative and quantitative disclosures. Some examples are given below:
Revisions made under this ISA were regarding new application material by encouraging management to provide information for disclosures earlier in the audit process.
The revision under this ISA was regarding the consideration of intentional misstatement of disclosures that may constitute fraud in the new application material.
Revision under this ISA relates to the communication regarding financial statements and disclosures in the audit process with those charged with governance.
Revision under this ISA relates to encouraging auditors to consider disclosures earlier in the audit process.
Revision under this ISA pertains to the enhanced requirements highlighting the need for attention to the information in disclosures, obtained from outside the general and subsidiary ledgers in the planning process. Further, assertions have to be revised to integrate the audit procedures for disclosures with account balances and transactions. Further, enhancement was to emphasize that the understanding of this ISA includes relevant aspects of that system and relevant information disclosed in the financial statements, obtained from within or outside general or subsidiary ledgers.
This revised the introductory and application material by emphasizing that materiality needs to be considered for qualitative disclosures.
This revision has strengthened procedures regarding the reconciliation of the financial statements and the adequacy of the presentation and disclosures in the financial statements. It includes information from within or outside of the general and subsidiary ledgers and consideration of the classification and description of financial information and the underlying transactions, events, and conditions and the presentation, structure, and contents of the financial statements.
This revision emphasizes on accumulation and evaluation of misstatements in disclosure.
Following are the challenges faced by Auditors in Audit Disclosure:
Auditing disclosures have indeed increased the reliability of financial instruments however, the process of audit disclosure remains difficult. IAASB has from time to time proposed additional guidance to provide auditors with practical guidance and also reduce the risk of audit. IAASB continues to monitor whether further amendments to the ISAs or any other form of non-authoritative guidance are needed.
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