The Financial Reporting Council (FRC) is consulting on proposals to revise the UK audit standard, ISA (UK) 315 on identifying and assessing the risks of material misstatement
The aim is to bring it in line with international standards to reflect revisions made by the International Auditing and Assurance Standards Board (IAASB) and are designed to establish a more robust and consistent risk identification and assessment.
The UK changes to ISA (UK) 315 Identifying and Assessing the Risks of Material Misstatement include requiring the auditor to understand the entity's use of IT in its business, the related risks and the systems of internal control addressing these risks. The related application material has also been significantly improved.
There are a number of provisions designed to enhance the use of professional scepticism throughout the risk assessment process, including a new requirement for the auditor, towards the end of the risk assessment process, to consider all audit evidence obtained from performing risk assessment procedures, whether corroborative or contradictory.
The changes also introduce the concept of 'inherent risk factors' to assist the auditor in identifying events or conditions that may affect the susceptibility of assertions about classes of transactions, account balances or disclosures to misstatement.
In addition, there is a stand-back requirement to drive the completeness of the identification of the risks of material misstatement by evaluating the completeness of the significant classes of transactions, account balances and disclosures identified by the auditor, among other revisions.
When finalised, the revised UK standard is proposed to be effective, in line with the international standard, for audits of financial statements for periods beginning on or after 15 December 2021. Early adoption of the revised standard will be permitted and is encouraged.
In issuing the revised ISA (UK) 315 for consultation, the FRC is not proposing to add any new UK requirements, given that the IAASB has sufficiently addressed matters raised by the FRC in its comment letter on the IAASB’s exposure draft.
The FRC has carried over the small amount of supplementary material added to ISA (UK) 315 (Revised June 2016), which clarifies who are 'those charged with governance' in a UK context and identifies that they are the appropriate persons to provide critical written confirmations in line with ISA (UK) 580 Written Representations.
The FRC is also consulting on conforming amendments to other UK standards as a result.
The consultation runs until 4 April 2020.