NZAuASB Meeting 10 April 2019

Event Date 10 April

Date And Time

Level 7
50 Manners Street

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

IAASB’s Exposure Drafts on Quality Management Standards

The Board started discussions about possible compelling reason changes for development of New Zealand quality management standards, based on the IAASB’s quality management standards.

Overall the Board is supportive of the proposed risk-based approach to quality management.

One concern is, historically in New Zealand, all references to ‘listed entity’ in the ISAs are amended to FMC reporting entities of a higher public accountability.

ED ISQM 2, Engagement Quality Reviews, includes guidance that suggests the engagement partner, as part of the eligibility criteria to be appointed as an EQR reviewer for a listed entity, cannot take on the role of the engagement quality review (EQR) without rotating off for 2 years.

This prohibition is not included in the International Ethics Standards Board for Professional Accountants (IESBA) Code, which deals with rotation requirements. The Board believes rotation requirements should be dealt with by the IESBA Code, and not by the IAASB, and will note this in its submission to the IAASB on ED ISQM 2. 

Should the IAASB retain these proposals, albeit in guidance material, the Board is concerned that audit quality in New Zealand may be sacrificed if this reference is extended to FMC reporting entities considered to have a higher level of public accountability.  It may therefore be necessary to retain the reference to listed entity in this instance. This will require the introduction of a definition of ‘listed entity’ in the New Zealand standards.

In relation to proposed ISQM 1, in the New Zealand context, the Board discussed whether to propose an engagement quality review (EQR) for all public interest entities (PIEs) as defined in Professional and Ethical Standard 1 (PES 1), or to leave it up to the firms to determine other entities of significant public interest, as proposed in ISQM 1.

The Board decided such a proposal  would be extending the requirements beyond what was intended by the IAASB’s proposals.

The Board also discussed possible options to amend the reference to Part 2 of the IESBA Code of Ethics, which relates to professional accountants in business and is outside the mandate of the XRB.

It was also noted that given the proposed international changes, it may no longer be necessary to retain all the existing New Zealand specific paragraphs in Professional and Ethical Standard 3.

The Board deferred the development of a New Zealand exposure draft to a later stage, once the IAASB finalises its standards. There is an option of a short exposure period if the changes needed relate only to terminology changes and clarification of the mandate and scope of the NZAuASB standard.

The Board will reflect on whether any further changes may be needed and then determine the most appropriate time to develop the New Zealand exposure draft.

IAASB EER Consultation Paper

The Board started its discussion on the IAASB’s Consultation Paper, Extended External Reporting (EER) Assurance and noted matters to raise in developing a New Zealand submission.

The Board is working closely with the Australian Auditing and Assurance Standards Board (AUASB) on this and will finalise its submission at the next meeting.

The Project Advisory Panel (containing two members each from New Zealand and Australia) is likely to continue in existence as the project proceeds.

IAASB LCE1 Consultation Paper

Roger Simnett presented the draft IAASB Consultation Paper, Audits of Less Complex Entities: Exploring Possible Options to Address the Challenges in Applying the ISAs.

Besides being a member of the NZAuASB (and chair of the AUASB), Roger has recently been appointed to the IAASB itself and in that capacity was asked to be the Chair of the LCE working group (formerly known as the SME/SMP group). 

The Consultation Paper is the foundation paper for the IAASB’s second LCE conference being held in Paris in May.

The Board expressed its support for the draft paper, noting that it contains a range of options for addressing the problem of scalability and proportionality of the ISAs and that no single solution is likely to attract a consensus at the conference.

The NZAuASB will consider an outreach plan for consultation on the Discussion Paper at its June 2019 meeting.

* Less Complex Entities

IAASB’s Future Strategy and Work Plan

The Board considered the IAASB’s Consultation Paper, Proposed Strategy for 2020-2023 and Work Plan for 2020-2021. Overall the Board supports the IAASB’s strategic approach, but wants to encourage the IAASB to extend connectivity and collaboration opportunities, specifically with the: 

  • International Accounting Standards Board (IASB), given the evolving accounting practice and increased complexity of transactions which impacts audit quality;
  • IESBA, to ensure consistency between the IAASB and IESBA standards; and
  • National standard setters, recognising the heavy workload of the strategy and work plan.

The NZAuASB also intends to emphasise the need to develop standards that enhance audit quality and audit inspections, but to remain principles-based, cautioning against undermining principles-based standards with too much application material.

A revised draft, incorporating public responses, will be circulated to the Board for final approval.

Meeting with IAASB member and members of the NZASB

The Board met with Lyn Provost, IAASB member, who provided the Board with an update of recent IAASB activities. 

Kimberley Crook, Chair NZASB, and Anthony Heffernan, Director – Accounting Standards at the XRB, presented the Board with an overview of current NZASB activities.

IAASB’s Exposure Drafts on Quality Management Standards