NZAuASB Meeting 3 June 2020

Here is a summary of the main matters considered at the public session:

Agreed-Upon Procedures Engagements

The Board approved an invitation to comment and exposure draft of proposed ISRS (NZ) 4400, Agreed-Upon Procedures Engagements. The proposed ISRS (NZ) is based on the IAASB’s ISRS 4400 issued in April 2020 and would replace APS-1(revised) Agreed Upon Procedures Engagements to Report Factual Findings issued by the New Zealand Regulatory Board. The NZAuASB is proposing to adopt the international standard without change unless there is a compelling reason to make changes that reflect New Zealand practices.

Non-Assurance Services and Fees Submissions

The Board approved the submissions to the IESBA on the Non-Assurance Services and Fee-Related Matters exposure drafts.

The NZAuASB’s view is that the NAS proposals do not sufficiently address perceptions that the assurance practitioner is not independent, particularly in respect of audit clients that are public interest entities (PIEs). The recommendation to the IESBA is that non-assurance services to audit clients that are PIEs should be prohibited.

The Board noted broad support for the IESBA’s fee proposals, however, it considers that it is not the role of the IESBA to set requirements for accounting disclosures. Rather the IESBA should be strongly encouraging the International Accounting Standards Board to address this area. 

The Board further acknowledged that getting the disclosure right is key to good decision making. So that the user sees the whole picture, disclosure should include not only fees for other services provided by the auditor, but also those paid to other practitioners.

Conforming Amendments Standard Approved

The Board approved Conforming Changes to the Auditing and Assurance Standards as a result of the revised Professional and Ethics Standard 1. The conforming amendments align the wording of various auditing and assurance standards with the revised and restructured PES 1 which came into effect in June 2019.

Have a look

Various guidance documents available on the XRB website have also been updated.

Group Audits

The Board considered and provided preliminary feedback on the proposals in the IAASB Exposure Draft, ISA 600 (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), as well as on the planned outreach. The Board will continue to consider the proposals and feedback received from its outreach when developing its submission to the IAASB, which is due on 2 October 2020.

Extended External Reporting (EER) Assurance

The Board considered feedback received from a virtual outreach event co-hosted by the NZAuASB, the AUASB, Deakin University and the Business Leaders Reporting Forum and provided further input for inclusion in its submission in response to the IAASB’s Consultation on Proposed Guidance: EER Assurance. The Consultation Paper is open for comment until 13 July 2020. Overall, the NZAuASB is supportive of the guidance which includes practical examples to assist practitioners.

Discussion on the XRB’s Covid-19 Activities

The Board received an overview from Michele Embling, Chair of the XRB Board, about the XRB’s strategic approach to Covid-19, and provided feedback on the XRB actions to date. Board members presented their views of the impact of COVID-19 in the current environment generally and, more specifically, the impact on accounting and auditing standards.  

The Board also noted and expressed its support for the NZASB’s proposed additional accounting going concern disclosures for Tier 1 and Tier 2 for profit and public benefit entities. The Board considers the proposed disclosures will be more aligned with the specific information the auditing standards expect an entity to disclose when significant judgements and/or material uncertainties were involved in the going concern assessment.  

Consideration of assurance issues on proposed accounting pronouncements

The Board received an update on the following accounting pronouncements and provided feedback to inform the NZASB’s submission to the international Boards.

IASB DP Business Combinations – Disclosures, Goodwill and Impairment. 

• The Board noted challenges in relation to the IASB’s proposed new disclosures on the subsequent performance of acquisitions. For example, the ability to audit the proposed disclosures would depend on entities having sufficient documentation of the rationale for acquisitions and systems that can track the performance of acquisitions. 
• The Board noted that goodwill impairment is a challenging area for both auditors and management, that management sometimes recognises goodwill impairment too late, and when impairment is recognised there is a tendency to write off the entire goodwill balance. Therefore, the Board supported the reintroduction of goodwill amortisation. 
• The Board generally did not support the IASB’s proposal to remove the requirement for a mandatory annual impairment test for goodwill.
• The Board supported the IASB’s proposals to simplify the ‘value in use’ calculation that forms part of the goodwill impairment test.    

IPSASB ED 70 Revenue with Performance Obligations; ED 71 Revenue without Performance Obligations; ED 72 Transfer Expenses.

The Board expressed general support for the IPSASB’s proposal to develop a standard based on IFRS 15 Revenue from Contracts with Customers, both because of the benefits of having closer alignment with the for-profit standards and because of the difficulties experienced with the exchange/non-exchange distinction in current standards.  

The Board noted the staff view that there is some overlap between the proposed distinction between specified activities and eligible expenditure in ED 71 (both of which ED 71 suggests could give rise to present obligations that meet the definition of a liability) and suggested that only one concept, that of eligible expenditure, might be required. Alternatively, the IPSASB could seek to clarify the proposals about specified activities.