Consultation on the Adopting of International Standards on Auditing (TILA)

General remarks

The Auditing Board of the Central Chamber of Commerce is herewith submitting its statement as follows on the consultation on the adopting of International Standards on Auditing (ISAs) issued in June 2009 by the Commission of the European Communities.

In the opinion of the Auditing Board of the Central Chamber of Commerce (later the Auditing Board), one of the most important tasks to be fulfilled is to enhance the functionality of the internal European audit markets. ISAs have a key role in improving and harmonisation of audit quality. We welcome the work, which the International Assurance and Auditing Standards Board (IAASB) has recently performed through a revision and clarification of the ISAs under the so-called Clarity Project.

As a starting point we support the adoption of these clarified ISAs throughout EU. We urge the Directorate General Internal Market and Services to move on into the adoption process soon. ISA adoption at EU level is in compliance with public interest. ISA adoption would bring significant benefits to the business community as a whole.

(1) Is international acceptance of the ISAs sufficiently demonstrated?

(2) What degree of importance do you attach to the fact that the Commission may amend the standards?

(3)To what extent are “add-ons” or “carve outs” by Member States acceptable?

The ISAs are accepted worldwide. They form the most advanced set of auditing standards globally. The Auditing Board thinks that the international acceptance of the ISAs is sufficiently demonstrated..

The Auditing Board finds that uniform acceptance and application of the ISAs globally is vital in order to fully benefit from their international character. Deviations and alterations would risk the consistent application of ISAs. Therefore the Auditing Board does not support EU amendments of the standards as a general principle. However the Auditing Board strongly supports the Commission´s efforts to influence and contribute to the work of the IAASB.

The Auditing Board does not support that carve-outs are allowed after the endorsement of ISAs. Uniform acceptance and application of the ISAs globally is vital. is In addition, the Auditing Board believes that some flexibility for the use of add-ons at national level should be left because Member States should be allowed to impose requirements on statutory audit which do not conflict or overlap with ISAs as such.

Questions:

(4) Do you have any comments on the overall cost/benefit analysis presented in the University of Duisburg/Essen study?

(5) Should the Application Material be part of the adoption process and acknowledged as 'best practice'?

(6) Should ISQC1 on internal quality controls be part of the adoption process?

(7) In case of adoption of the ISAs at EU level, would a common reference to “ISAs as adopted in the EU” in all auditors' reports in the EU be sufficient? Or, is further harmonisation of audit reports necessary?

The analysis presented by the University of Duisburg/Essen seems carefully done and well reasoned. The Auditing Board believes that the adoption of ISAs in the EU would result in quantitative and qualitative benefits for companies, investors and regulators. Nevertheless it should be borne in mind that the current situation in Member States varies significantly. In Nordic countries statutory audit is obligatory for very small companies. For those audits, the application of ISAs does not play such an important role as it does for audits of middle-size and large companies. Thus the adoption of ISAs would in our understanding cause a bigger increase in costs for small companies than what is presented in the report.

The Auditing Board finds the application material as an inherent part of the standards. However, the Auditing Board has identified some disadvantages and costs relating to the inclusion of the Application and Other Explanatory Material as part of an EU adoption process. In spite of that, the Auditing Board sees that advantages are more significant. The application material should be adopted as guidance only.

ISQC 1 and ISA 220 have a significant role in the way how audit firms organise their internal quality controls. To create an alternative standard would be too burdensome for most regulators. Therefore, the Auditing Board supports the adoption of the ISQC 1 standard together with the ISAs. The Auditing Board agrees on the conclusion of the University of Duisburg-Essen study that the introduction of ISQC 1 would increase the benefits of the ISA adoption at EU level. However, the Auditing Board wants to point out that ISQC 1 should be applied only to statutory audits and other statutory tasks of an auditor or an audit firm, not to other assurance engagements.

It is vitally important that the audit reports of internationally operating companies and listed companies are uniform throughout Europe because it facilitates the understanding of investors and other stakeholders. Thus uniformity improves the functioning of financial markets.

Questions:

(8) Do you support adoption of ISAs at EU level?

(9)If yes, which of the following options do you support: Option 1 – ISAs should be adopted for the audit of the consolidated accounts of the listed companies (IFRS accounts); Option 2 – ISAs should be adopted for the statutory audit of all companies except for the audits of small companies where Member States would be free to choose which audit standards should be applied; Option 3 – ISAs should be adopted for the statutory audit of all companies, including small companies for which an audit is required.

(10) Do you have comments on the timing in case of an adoption of the ISAs?

The Auditing Board supports the adoption of ISAs at EU level on reasons which have been presented above. Member States have the option to exempt the small companies from statutory audit requirement.

In principle we are in favour of applying ISAs in all statutory audits which are performed in the EU, especially in IFRS environment and relating to audits of public interest entities. Statutory audit in small companies is different. “Audit is an audit” approach is a challenge in SME audits. The ISAs should allow for audit work and audit documentation to be proportionate to the size of the audited entity. On the other hand, it should be kept in mind that the user of an audit report must know how the audit has been conducted. It is challenging for many users of audit reports and especially for the public to understand significant variations in audit methodologies. In summary, it is important to create flexibility in the application of ISA standards regarding statutory audits of SME companies. This could be accomplished through the special ISA SME guidance.

The Auditing Board thinks that the adoption of ISAs should be done as soon as possible.

The Auditing Board of the Central Chamber of Commerce of Finland

• Lausunnon saaja: European Comission
• Lausunnon päivä: 3.9.2009
• Kirjoittaja: Pasi Horsmanheimo
• Titteli: Secretary General

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