NZAuASB Meeting 9 April 2020

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

Consideration of the IESBA’s Non-Assurance Services and Fee-related Matters exposure drafts

The Board considered the feedback it has received from stakeholders in its outreach on the two Exposure Drafts issued by the IESBA on non-assurance services (NAS) and fees.

The Board also received a presentation from Channa Wijesinghe, Chief Executive Officer, Accounting and Professional & Ethical Standards Board in Australia (APESB) outlining the APESB’s views on the proposals following its own outreach.

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 stakeholder feedback indicated mixed views on whether NAS for PIEs should be prohibited, but there was a desire for things to be clearer; a prohibition on NAS for audit clients that are PIEs would remove ambiguity and address the common tensions around different perceptions of what is and is not appropriate.

The Board noted that the IESBA’s current proposal in relation to PIEs, by elevating the self-review threat as the sole test for determining whether an NAS should be performed, elevates that independence threat to a higher level than others (for example, advocacy and familiarity threats). This should not be the case and all threats need to be given the same level of consideration.

The Board also noted the consistent stakeholder support, on both sides of the Tasman, for the proposals to remove the “materiality qualifier” for NAS for audit clients that are PIEs and to increase the role of those charged with governance in relation to NAS to be performed by the entity’s auditor.

The Board also noted the broad support for the IESBA’s fee proposals. It considered, however, that it is not the role of the IESBA to set 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. In this regard, not only should fees for other services to the auditor of the entity be disclosed, but also fees paid to other practitioners so that the user sees the whole picture.

The Board is aware of the importance of these proposals, and that the public interest in relation to NAS continuing to be delivered by auditors is a matter for careful assessment.

The deadline for submissions to the IESBA has been extended by one month to 4 June 2020. The NZAuASB will therefore consider and approve its submissions on the global proposals at the June meeting.

Depending on the outcome of the IESBA’s due process, there may be an opportunity to consider the New Zealand position further once the changes to the Code have been confirmed later this year.

Approval of Revised NZ SRE 2410

At its February meeting, the NZAuASB agreed to form a joint sub-committee consisting of NZAuASB members and members of the Australian Auditing Standards Board (AUASB) to consider how to describe the auditor’s responsibility in relation to going concern in the interim review report.

The joint sub-committee’s recommendation is to retain the extant approach, given the narrow scope of the revision project. This will mean that the standard will continue without any standard wording in the review report on the responsibilities related to going concern.

The NZAuASB accepted this recommendation and has approved, subject to approval by the AUASB, NZ SRE 2410, Review of Financial Statements Performed by the Independent Auditor of the Entity. The AUASB is planning to consider its equivalent standard at its June meeting.

In approving the standard (subject to the Australian consideration), the NZAuASB is acutely aware that issues relating to going concern are already arising in interim reviews as a result of the Covid-19 crisis. Interim reviews will be among the matters considered for guidance through the XRB’s Covid-19 webpage.

At this point, it is important for auditors to note that where there is a material uncertainty related to going concern disclosure in the interim financial statements, the extant NZ SRE 2410 requires the auditor to label the emphasis of matter paragraph relating to going concern as an “Emphasis of Matter” (EOM) paragraph in the review report. The revised standard will require it to be labelled as a Material Uncertainty Related to Going Concern (MURGC).

Until the revised standard is issued, auditors should label the paragraph as an EOM paragraph. To be consistent as possible until the revised standard is issued, we suggest the auditor label the EOM paragraph as an EOM MURGC in the interim review report.  

Part 2 of the Code

The Board considered and approved an exposure draft to incorporate Part 2 of the IESBA Code into Professional and Ethical Standard 1. Part 2 of the IESBA Code sets out requirements and application material for professional accountants in business when applying the conceptual framework.

Part 2 is also applicable to individuals who are professional accountants in public practice when performing professional activities pursuant to their relationship with the firm, whether as a contractor, employee or owner.

The NZAuASB will use the term “assurance practitioner” throughout Part 2.

ED NZAuASB 2020-1, Proposed Amendments to PES 1: Part 2 – Assurance Practitioners Performing Professional Activities Pursuant to Their Relationship with the Firm, has been released with a 90-day comment period. Submissions to the NZAuASB are due on 20 July.

Meeting with Lyn Provost

Lyn Provost, IAASB member, provided the NZAuASB with an update on the IAASB’s virtual March meeting, her roles on the IAASB and progress on the IAASB’s current projects.

The NZAuASB thanked Lyn for her update.