Appendix 1 – Comments on Proposed ISRS 4410 (Revised)

31 March 2011

IAASB Technical Director
International Auditing and Assurance Standards Board
545 Fifth Avenue, 14th Floor
New York

New York 10017 USA

Dear Sir / Madam

Proposed International Standard on Related Services ISRS 4410 (Revised), Compilation Engagements

Thank you for the opportunity to comment on the proposed revision of ISRS 4410 Compilation Engagements. CPA Australia, the Institute of Chartered Accountants in Australia (the Institute) and the National Institute of Accountants (the Joint Accounting Bodies) have considered this proposed revision and our comments follow.

The Joint Accounting Bodies represent over 180,000 professional accountants in Australia. Our members work in diverse roles across public practice, commerce, industry, government and academia throughout Australia and internationally.

The Joint Accounting Bodies support the revision of ISRS 4410 and an updated standard addressing practitioner needs in this area is welcomed. However we wish to draw the IAASB’s attention to certain matters including the branding of the proposed standard, its relationship with assurance standards and reporting under the standard. These are dealt with in the attached Appendix, which also contains our responses to matters on which specific comment was requested.

The Joint Accounting Bodies are committed to assisting in the development and implementation of the highest quality standards. If you have any questions regarding this submission, please do not hesitate to contact Amir Ghandar (CPA Australia) at , Paul Meredith (Institute) at or Tom Ravlic (NIA) at .

Yours sincerely,

Alex Malley
Chief Executive Officer
CPA Australia Ltd / Graham Meyer
Chief Executive Officer
Institute of Chartered Accountants in Australia / Andrew Conway
Chief Executive Officer
National Institute of Accountants

Relationship with Assurance Standards

The IAASB’s stated objective is to serve the public interest by setting high-quality auditing and assurance standards and by facilitating the convergence of international and national auditing and assurance standards, thereby enhancing the quality and consistency of practice throughout the world and strengthening public confidence in the global auditing and assurance profession (IAASB Terms of Reference – March 2010).

Given the IAASB’s view that a compilation engagement is not an assurance engagement (with which the Joint Accounting Bodies agree), it is presumed that the designation of ISRS 4410 as an International Standard on Related Services means that compilation engagements are viewed as ‘related’ to assurance engagements. However, it is not clear that a relationship in fact exists between compilation engagements and assurance engagements.

In the Australian context, the majority of compilation engagements are performed for entities that do not require an assurance engagement. These engagements are typically performed by a non-assurance practitioner, and it is understood that no assurance can be derived from the result of the engagement. In those cases where an assurance engagement is performed on financial statements that have been the subject of a compilation engagement, this does not impact on the nature of the work to be performed by the assurance practitioner. The Joint Accounting Bodies consider that the classification of the standard as a ‘Related’ standard needs to be reconsidered as it has the potential to confuse.

In the Australian environment, the equivalent Australian standard is issued by the board which issues professional standards[1], and not by the board responsible for auditing and assurance standards[2]. Establishing a similar practice internationally may assist in ensuring the avoidance of confusion between what constitutes an assurance engagement and a compilation engagement.

Framework for Assurance Engagements

The existing framework for assurance engagements distinguishes between assurance and non-assurance engagements. It seeks to ensure that no assurance is attributed to the outcome of a non-assurance engagement. However it is widely recognised that some degree of reliance is placed by users on compiled financial information. In our view the framework should recognise this issue and address it specifically, including the different nature of the reliance that users are entitled to put on assurance reports and compilation reports. We acknowledge this is a broader topic that merits further consideration elsewhere but it could be considered by the IAASB in the context of this exposure draft.

Effective date

In relation to the issue of the proposed effective date for the standard being 18 months after approval of the final revised standard, we consider that this would provide a sufficient period to support effective implementation of the final ISRS.

Our views on the particular questions identified by the IAASB follow:

1.  Proposed ISRS 4410 is designed to apply when the practitioner is engaged to compile financial information in accordance with an applicable financial reporting framework and to provide a compilation report for the engagement performed in accordance with this ISRS. Do respondents believe this scope is appropriate, and is it clear when practitioners undertaking the compilation of financial information are required to apply the standard? What practical challenges, if any, might arise from the proposed scope of the standard?

The Joint Accounting Bodies do not believe that this proposed scope is appropriate, and consider that this scope is too limited.

It is noted the existing ISRS 4410 requires an accountant to issue a compilation report in all circumstances when an accountant’s name is associated with financial information compiled by the accountant.

The Australian standard based on the current ISRS 4410 (APES 315 Compilation of Financial Information), extends this requirement to also apply:

·  where the compiled financial information is for external use (i.e. not merely for internal use by the client); or

·  where it is more likely than not that the intended user of the compiled financial information may not understand the nature and scope of the accountant’s involvement with that information.

There is also an ability for the accountant to consider not issuing a compilation report where the compiled information will be the subject of an audit or review.

The proposed scope effectively allows an accountant and their client to opt out of the application of the standard. The Explanatory Memorandum states that if the practitioner is engaged to compile financial information, but the engaging party does not require the practitioner to provide a report for the engagement in accordance with the proposed ISRS, the engagement is not within the scope of the proposed ISRS, although there does not appear to be such a clear expression of this issue within the proposed standard itself. The Joint Accounting Bodies consider that there should not be an ability to opt out of the standard in this manner.

The need for a clear exposition of the accountant’s role and management’s responsibility, together with the standardisation of reports across all such engagements, mean that a compilation report should be required whenever a compilation engagement is undertaken, with the exceptions allowed in accordance with the model adopted in APES 315 (for internal use only, or where an audit or review will be conducted if considered appropriate).

2.  Do respondents believe the compilation engagement performed under the proposed ISRS is clearly distinguishable from assurance services (audits and reviews of financial statements) to users of compiled financial information and the practitioner’s report, to those who engage practitioners to prepare and present financial information of an entity, and to practitioners undertaking these engagements?

This distinction would benefit from being identified and reinforced. One useful addition would be an overt statement that, in the event of a subsequent assurance engagement for which the compiled financial information is the subject matter, the same practitioner cannot conduct both engagements. In our view this would be of particular importance in the SME sector.

3.  Is the requirement for the practitioner to obtain management’s acknowledgement of its responsibilities as specified under the proposed ISRS an acceptable premise for the practitioner undertaking a compilation engagement under the standard?

This is an acceptable premise in the situation where the compiled financial information is a general purpose or special purpose financial statement. However, we question whether it would be required in all compilation engagements, particularly where the compiled information is for internal use only.

4.  Do respondents believe the proposed requirements dealing with the responses and actions by the practitioner when the practitioner believes the compiled financial statements contain a material misstatement, or are misleading, are appropriate?

The proposed requirements are appropriate.

5.  When the practitioner identifies the need to amend the compiled financial information so that it will not be materially misstated or misleading, do respondents agree that the practitioner may, in appropriate circumstances, propose the use of another financial reporting framework as long as the proposed alternative framework is acceptable in the circumstances of the engagement and is adequately described in the financial information?

Yes.

6.  Appendix 3 of the proposed ISRS sets out several illustrative practitioners’ compilation reports. Do respondents agree these reports provide useful additional material to illustrate some different scenarios for compilation engagements? Do respondents believe the communications contained in these illustrative reports are clear and appropriate?

The provision of illustrative practitioners’ compilation reports provides useful additional material and we make the following comments concerning those drafted in the proposed ISRS.

We have reservations about the statement: ‘These financial statements are presented in accordance with International Financial Reporting Standards’. This statement may be interpreted by some users as implying assurance. We suggest the alternative ‘these financial statements have been compiled in accordance with International Financial Reporting Standards’.

Separate sections and headings for the key components of the illustrative reports would add clarity. We recommend the approach taken in APES 315, which contains illustrative reports with separate sections including:

·  The responsibility of [those charged with governance]

·  Our [the practitioner’s] responsibility

·  Departure from financial reporting framework [if applicable]

7.  Proposed ISRS 4410 is premised on the basis that a firm providing compilation engagements under the standard is required to apply, or has applied, ISQC 1 or requirements that are at least as demanding. In light of this, are the requirements concerning quality control at the engagement level sufficient? Does this approach to specifying quality control provisions in proposed ISRS 4410 create difficulty at a national or firm level? If so, please explain.

In Australia the application of ISQC 1 has been extended beyond assurance practices, with some tailoring of the provisions applicable for non-assurance practices. Accordingly all firms in Australia are required to comply with quality control standard APES 320 Quality Control for Firms, which is based on ISQC 1. We therefore consider that the specification of quality control provisions in the proposed ISRS would not be required in the Australian context, but would not create any difficulty if it were present.

[1] The Accounting Professional and Ethical Standards Board (APESB)

[2] The Auditing and Assurance Standards Board (AUASB)