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CEBS Comments on IAASB Exposure Draft ISA 200 (Revised and Redrafted)

Core Content

The Committee of European Banking Supervisors (CEBS) has provided detailed comments on the IAASB Exposure Draft (ED) for the Proposed International Standard on Auditing 200 (Revised and Redrafted), titled "Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing". CEBS emphasizes the importance of clarity, consistency, and rigor in this key auditing standard, as it forms the foundation for all audit work.

Main Concerns and Suggestions

1. Overall Organisation and Clarity

• The ED lacks sufficient clarity and organisation, especially for non-English speakers.
• There is repetitive discussion of certain terms such as "professional scepticism" and "reasonable assurance".
• CEBS suggests that the ED should be restructured to focus on the main objective of the audit and the auditor's opinion.

2. Scope of the ISA

• The current description of the scope is not accurate.
• The ED covers the overall objective of the auditor, key audit concepts, and the scope and authority of the ISAs.
• CEBS recommends amending the scope paragraph to reflect this broader coverage.

3. Overall Objective of the Independent Auditor

• The distinction between the "objective of the audit" and the "objective of the auditor" is confusing.
• CEBS proposes a clearer and more direct expression of the auditor's main objective, which is to express an opinion based on reasonable assurance.
• A suggested revised paragraph 5 includes:
  • (i) Whether the financial statements are free from material misstatement.
  • (ii) Whether the financial statements are prepared in accordance with the applicable financial reporting framework.
• Paragraph 6 should be moved to the end of the requirements section, as it deals with the auditor's actions if the objective is not met.

4. Preparation of Financial Statements

• CEBS recommends changing the wording of paragraph 7 from "premised on the fact" to "based on the assumptions" for better clarity.

5. Professional Judgement

• CEBS is concerned that the current discussion on professional judgement emphasizes the "judgement" aspect rather than the "professional" aspect.
• They suggest that the term "reasonable professional judgement" should be used instead.
• The first sentence of A 25 should be omitted to avoid misinterpretation.

6. Professional Scepticism

• The discussion of professional scepticism is inconsistent across paragraphs 18, A 26, A 27, and A 42.
• CEBS recommends aligning all references to professional scepticism in one section to ensure a consistent message.

7. Inherent Limitations of an Audit

• CEBS is not convinced that "inherent limitations of an audit" is a core concept, but rather a reflection of the audit expectation gap.
• They suggest that the discussion on inherent limitations should be simplified and focused on the key aspects:
  • Paragraph A 28 (amended to exclude discussion on financial reporting and business processes)
  • Paragraphs A34–A40 (covering audit evidence and cost-benefit balance)
• Paragraphs A32 and A33 should be omitted as they discuss inherent risk, not inherent limitations.
• CEBS notes that the discussion of fair value in A32 should be more specific, referring to certain fair values rather than general ones.
• The statement in A 29 that "inherent limitations, by their nature, cannot be overcome" is misleading; it should be corrected to "cannot be completely overcome".

8. Requirements Section

• CEBS recommends including paragraphs 14 and 15 (auditor independence) in this section as essential guidance or application material.
• They suggest replacing paragraph 23 with A 53 for clarity.
• The phrase in paragraph 24, "the proper application of the requirements of the ISAs will ordinarily provide a sufficient basis for the auditor's achievement of the objectives", should be revised to reflect that requirements alone may not be sufficient in complex audits.

9. Application and Explanatory Material

• CEBS notes that the application and explanatory material should be aligned with the revised structure and content of the ED to ensure consistency and clarity.

Key Information

• CEBS is a key stakeholder in the audit standard-setting process, particularly interested in financial stability and the quality of audit work.
• Their comments are coordinated by the Expert Group on Financial Information (EGFI), with input from Pat Sucher from the FSA, UK.
• The comments are structured in the order of the ISA, rather than by importance, and are detailed in the Appendix.
• CEBS highlights the need for the ED to set a high standard for auditors, avoid excessive defensiveness, and ensure that the concepts are clearly defined and consistently applied.

Conclusion

CEBS believes that the ED should be revised to improve clarity, organisation, and consistency. They emphasize the importance of clearly defining the auditor's overall objective, ensuring that professional judgement is appropriately framed, and aligning the discussion on professional scepticism and inherent limitations. The goal is to ensure that the ISA 200 sets the right tone for the entire suite of ISAs and promotes high-quality audit practices.