IESBA releases final code revisions to group audits

The International Ethics Standards Board for Accountants (IESBA) released final revisions to the code to holistically address independence considerations in an audit of group financial statements.

"For a long time, there was a vacuum in international standards addressing the independence of audit firms and individuals involved in group audits, leading to uncertainty and inconsistent practice around the world," IESBA Chair Gabriela Figueiredo Dias said in a news release. "This standard effectively closes that gap and responds in a timely manner to a public interest need for robust and clear requirements for independence in this important area." 

The revisions, according to the release:

• Strengthen and clarify the independence principles that apply to:
• Individuals involved in a group audit, including those within, or engaged by, firms that audit components within a group.
• Firms engaged in the group audit, including firms within and outside the group auditor firm's network.
• Specify the need for, and content of, appropriate communication on independence matters between the group auditor firm and component auditor firms participating in the group audit.
• More explicitly set out the process to address a breach of an independence provision at a component auditor firm, reinforcing the importance of transparency and appropriate communication with those charged with governance of the group.
• Amend the definitions of the terms "engagement team" and "audit team" in the code to recognise the different and evolving engagement team structures and address the implications of those definitional changes.
• Provide guidance to facilitate the determination of who is included in an engagement team or an audit team.
• Revise the definitions of a number of existing terms and establish new defined terms with respect to independence in a group audit context.

The pronouncement will be effective for audits of financial statements and group financial statements for periods beginning on or after 15 December 2023, with early adoption permitted.

UK Endorsement Board publishes comment letter on IAS 12 reforms

The UK Endorsement Board issued a draft comment letter on the proposed changes to the income taxes standard detailed in the IASB's exposure draft, International Tax Reform — Pillar Two Model Rules, the UK Financial Reporting Council (FRC) said in a news release.

The letter is open for stakeholder comments until the close of business Friday. The FRC release said that the short comment period was related to the "urgency of the amendments and the IASB's accelerated timetable". Responses can be sent by email to UKEndorsementBoard@endorsement-board.uk.

FRC publishes guidance for banking audits

The UK regulator has published a thematic review on Big Four audit firms' methodology around IFRS 9, focusing on the audit of expected credit losses (ECL) for larger banks, the FRC said in a news release. The review explores the continued challenges for auditors, identifies several examples of good practice, and highlights areas for improvement.

According to the publication, the FRC has seen examples of effective application of the firms' templates and tools resulting in high-quality audit work. This was particularly evident in:

• The use of templates for individually assessed exposures;
• Automated tools to perform tests across all loans within a portfolio; and
• The evaluation of the ECL models through independent recoding and recalculations by the firms' experts.

Despite several examples of good practice, the FRC continues to observe instances of poorer application of methodology by some audit teams across a number of aspects of auditing IFRS 9, particularly ECL modelling, SICR, MES, and individually assessed exposures, the publication said.

The FRC expects the thematic review to be a useful resource for auditors, audit committees, and stakeholders in the banking sector, highlighting the importance of consistent and appropriate application of IFRS 9 audit methodology, to ensure high-quality auditing is performed over this critical and judgemental area, the news release said.

— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.