EBA欧洲银行-Letter-to-Arnold-Schilder-IAASB-re-Revised-ISA-540_11页_271kb

EBA Summary of Comments on Proposed ISA 540 (Revised): Auditing Accounting Estimates and Related Disclosures

Core Content

The European Banking Authority (EBA) has provided detailed comments on the International Auditing and Assurance Standards Board (IAASB)’s proposed International Standard on Auditing (ISA) 540 (Revised), focusing on the audit of accounting estimates and related disclosures. The EBA emphasizes the importance of high-quality auditing standards for the banking and financial industry, particularly in the context of the implementation of the Expected Credit Loss (ECL) requirements under IFRS 9. They believe that the revised ISA 540 should enhance audit quality, address the increasing complexity of ECL estimates, and promote professional skepticism and robust internal controls.

Main Views and Key Points

1. Support for the Revised ISA 540

• The EBA supports the principles-based approach of the ED (proposed standard), which aims to address risks of material misstatement arising from accounting estimates.
• They urge the IAASB to finalize the ED as soon as possible to enable early adoption, especially for ECL-related audits.
• They welcome the increased emphasis on the audit of internal controls, which is essential for ensuring the reliability of accounting estimates.

2. Professional Skepticism

• The EBA believes that professional skepticism should be a core element of the revised ISA 540, as it is critical for high-quality audits of ECL.
• They recommend that the standard explicitly require auditors to challenge management's assumptions and judgments and document how they applied professional skepticism.
• They suggest that the ED should include more guidance on when and how auditors should apply professional skepticism, including specific documentation requirements.

3. Audit of Accounting Estimates

• The EBA supports the inclusion of a requirement for auditors to develop their own point estimate or range for non-low-risk estimates to evaluate the reasonableness of management's estimates.
• They believe that in the context of ECL, auditors may not always be able to develop independent estimates due to the complexity of models and assumptions.
• They recommend that the ED includes more guidance on the circumstances under which auditors should develop their own estimates and that the process should involve first requesting management to consider alternative assumptions or provide additional disclosures.

4. Internal Controls and ECL

• The EBA emphasizes the importance of internal controls in ensuring the reliability of accounting estimates, especially for ECL.
• They suggest that the ED should explicitly mention the testing of relevant controls for ECL and clarify that substantive procedures alone are insufficient.
• They recommend moving some of the application guidance related to internal controls into the main text of the standard to improve enforceability.

5. Sensitivity and Materiality

• The EBA supports the inclusion of guidance on how auditors should consider and document the sensitivity of accounting estimates to different methods, assumptions, and data.
• They recommend linking the outcome of audit procedures (e.g., using the auditor's own point estimate or range) with the level of materiality applied in the audit and how this is reflected in the audit report.

6. Other Recommendations

• The EBA suggests extending the list of factors in A54 to include the use of overlays (adjustments to model results) and linking it to A30.
• They recommend that the ED include more examples of audit procedures in the application guidance to enhance clarity and implementation.
• The EBA supports the inclusion of specific guidance for smaller entities and encourages the IAASB to engage with IFIAR and CEAOB to improve the enforceability of the standard.
• They also suggest that the ED should emphasize the importance of complete and focused disclosures and include guidance on audit procedures related to financial instruments in inactive or illiquid markets.

Conclusion

The EBA sees the revised ISA 540 as a critical step in improving audit quality for the banking sector, especially in the context of IFRS 9 ECL. They recommend that the IAASB strengthens the standard by incorporating more specific guidance, enhancing enforceability, and promoting professional skepticism and internal controls.