EBA欧洲银行-2011-05-23-EBA-comment-letter-to-IAASB-re-Disclosures-DP_9页_311kb

EBA Summary on Audit Implications of Financial Reporting Disclosures

Core Content

The European Banking Authority (EBA) has provided detailed comments on the audit implications of financial reporting disclosures, emphasizing the need for more specific guidance and requirements in International Standards on Auditing (ISAs) to address the increasing complexity and importance of disclosures in financial statements.

Main Issues and Views

1. Immaterial Disclosures

• The EBA acknowledges that some disclosures may be immaterial and could be removed to enhance understandability.
• Examples include overly detailed or boilerplate disclosures that do not add relevant information.
• They suggest that a disclosure framework, possibly developed by the IASB, could help clarify what is necessary and when omissions or irrelevant information may lead to material misstatements.

2. Sufficiency of ISA Requirements

• While ISAs currently include some provisions for disclosures, the EBA believes more specific requirements and guidance are needed.
• Current ISAs combine disclosure requirements with those for financial statements as a whole, which can make it difficult for auditors to focus on disclosures specifically.
• The EBA encourages the IAASB to collaborate with the IASB to develop a more tailored disclosure framework.

3. Key Issues in Gathering Audit Evidence

• Quality of Management Process: The quality of audit evidence depends on the process management uses to prepare disclosures.
• Internal Controls: Disclosures are often generated from systems with less internal control, affecting reliability.
• Judgment in Disclosures: High levels of management judgment in disclosures require auditors to exercise more scepticism and gather sufficient evidence to assess completeness and neutrality.

4. Effort for Fair Value Disclosures

• The EBA expects auditors to apply the same level of effort to fair value disclosures as to amounts recognized on the balance sheet, regardless of whether the information is disclosed or recognized.
• They note that the risk of material misstatement for disclosures not linked to financial statement line items (e.g., off-balance sheet commitments) may be higher than for those that are.

5. Impact of IASB Conceptual Framework Change

• The shift from reliability to faithful representation does not change the expectations for preparers and auditors regarding completeness and neutrality.
• However, increased use of judgment may affect the nature of audit procedures, particularly in evaluating the sufficiency of disclosures related to estimation uncertainty.

6. Relevance of Non-Framework Required Disclosures

• The EBA supports the idea that disclosures not required by the financial reporting framework but relevant to users (e.g., non-compliance with a critical law) should be included if they are material in a qualitative sense.
• Materiality is determined by whether the omission or misstatement could influence users' decisions.

7. Material Misstatement of Disclosures

• A material misstatement occurs when a disclosure could influence users' economic decisions.
• Examples include:
  • Judgment and Assumptions: Factual errors, unreasonable assumptions, or inadequate explanations.
  • Estimation Uncertainty: Inaccurate or incomplete information on sources of uncertainty or sensitivity analysis.
  • Internal Processes: Factual misrepresentation of the process.
  • Fair Value Disclosures: Misrepresentation of the measurement basis or insufficient explanation of the impact of major transactions.

8. Audit Evidence for Non-Line Item Disclosures

• For disclosures not related to specific line items (e.g., risk management policies), auditors should ensure the information is correctly described and comprehensive.
• They should not necessarily test the effectiveness of controls unless management asserts a specific level of confidence.
• For stress test disclosures, auditors should assess the process and the reasonableness of assumptions and scenarios, especially when independent evidence is available.

9. Auditing Subjective or Forward-Looking Disclosures

• The EBA believes that all disclosures are capable of being audited, even if they are subjective or forward-looking.
• Auditors must devote sufficient effort to obtain evidence for all material disclosures, considering their inherent subjectivity.

10. Criteria for Assessing Auditor's Judgement

• Auditors should assess the fair presentation of financial statements based on their understanding of the entity, its business, and environment.
• They must identify material elements and determine whether the disclosures meet the "true and fair" standard.
• The EBA supports the ISA 700 requirements and highlights the importance of ongoing dialogue between auditors, regulators, and industry bodies in identifying necessary disclosures.

Key Recommendations

• Develop a disclosure framework to guide preparers, users, and auditors.
• Separate ISA requirements for disclosures to enhance clarity and focus.
• Provide practical guidance on evaluating the sufficiency and appropriateness of audit evidence for disclosures.
• Maintain audit effort for disclosures based on materiality and risk, not just the presence of the information on the face of the financial statements.
• Encourage collaboration between IAASB and IASB to improve the audit of disclosures.
• Ensure auditors apply scepticism and judgment when assessing disclosures involving high levels of estimation uncertainty.