Introduction: The International Standards on Auditing (ISAs) are the cornerstone of global auditing practices, providing a comprehensive framework for the audit of financial statements. Developed by the International Auditing and Assurance Standards Board (IAASB), ISAs aim to enhance the quality, consistency, and credibility of audits worldwide. However, auditing and assurance encompass a broader range of services beyond traditional audits. To address these, the IAASB also issues other standards, including the International Standards on Review Engagements (ISREs), International Standards on Assurance Engagements (ISAEs), International Standards on Related Services (ISRSs), and International Standards on Quality Management (ISQMs). This comprehensive set of standards ensures that auditors are equipped to provide high-quality assurance and related services across diverse contexts.
1. International Standards on Auditing (ISAs)
ISAs are designed to guide auditors in performing financial statement audits, ensuring that audits are conducted with consistency, objectivity, and reliability across jurisdictions. They establish the fundamental principles and detailed procedures auditors must follow to form an opinion on financial statements.
A. Purpose and Scope of ISAs
- Financial Statement Audits: ISAs provide guidelines for auditing historical financial statements, focusing on obtaining sufficient appropriate audit evidence to express an opinion on whether the statements are free from material misstatement.
- Global Applicability: ISAs are adopted or adapted by over 130 countries, promoting consistency and comparability in financial reporting across different jurisdictions.
B. Key ISAs
- ISA 200 – Overall Objectives of the Independent Auditor: Outlines the fundamental principles and responsibilities of auditors, emphasizing the importance of ethical requirements, professional skepticism, and audit evidence.
- ISA 315 – Identifying and Assessing Risks of Material Misstatement: Provides guidance on understanding the entity and its environment to identify risks that may lead to material misstatements.
- ISA 700 – Forming an Opinion and Reporting on Financial Statements: Establishes the requirements for the auditor’s report, including the form and content of the auditor’s opinion.
2. International Standards on Review Engagements (ISREs)
ISREs provide guidance for review engagements, where auditors perform limited assurance procedures to assess whether financial statements are plausible, without conducting a full audit.
A. Purpose and Scope of ISREs
- Limited Assurance Engagements: ISREs are designed for engagements that provide a moderate level of assurance, typically through analytical procedures and inquiries rather than extensive audit testing.
- Application in Interim Reporting: ISREs are often used for interim financial reporting, providing stakeholders with timely, though less comprehensive, assurance on financial statements.
B. Key ISREs
- ISRE 2400 – Engagements to Review Financial Statements: Provides detailed guidance for independent reviews of financial statements, focusing on procedures that are narrower in scope than audits.
- ISRE 2410 – Review of Interim Financial Information Performed by the Independent Auditor: Offers guidance for auditors who review interim financial information of entities they already audit annually.
3. International Standards on Assurance Engagements (ISAEs)
ISAEs cover assurance engagements other than audits or reviews of historical financial information. These standards are critical for providing assurance on non-financial information, reflecting the evolving needs of stakeholders for broader forms of assurance.
A. Purpose and Scope of ISAEs
- Non-Financial Information Assurance: ISAEs guide auditors in providing assurance on areas such as sustainability reporting, compliance with regulations, and internal controls.
- Flexible Framework: ISAEs provide a flexible framework that can be applied to various types of information, addressing the growing demand for assurance beyond traditional financial reporting.
B. Key ISAEs
- ISAE 3000 – Assurance Engagements Other Than Audits or Reviews of Historical Financial Information: Establishes the general principles and procedures for assurance engagements on non-financial information, such as corporate social responsibility reports and compliance audits.
- ISAE 3402 – Assurance Reports on Controls at a Service Organization: Provides guidance for assurance engagements on the effectiveness of controls at service organizations, commonly used in the context of outsourced services.
- ISAE 3410 – Assurance Engagements on Greenhouse Gas Statements: Offers guidance on providing assurance on greenhouse gas emissions reports, reflecting the growing importance of environmental reporting.
4. International Standards on Related Services (ISRSs)
ISRSs guide auditors in performing related services, such as agreed-upon procedures and compilations, where the auditor provides factual findings rather than assurance or opinions.
A. Purpose and Scope of ISRSs
- Agreed-Upon Procedures: ISRSs are used for engagements where specific procedures are agreed upon with the client, and the auditor reports the factual findings without providing an opinion.
- Compilation Engagements: ISRSs also cover compilation engagements, where auditors assist in preparing financial statements without providing assurance on their accuracy.
B. Key ISRSs
- ISRS 4400 – Agreed-Upon Procedures Engagements: Provides guidance for engagements where auditors perform procedures agreed upon with the client and report factual findings without expressing an opinion.
- ISRS 4410 – Compilation Engagements: Offers guidance for compilation engagements, where auditors assist in preparing financial statements without providing assurance.
5. International Standards on Quality Management (ISQMs)
ISQMs focus on quality management at the firm level, ensuring that audit and assurance engagements are conducted with a consistent, high level of quality. These standards replace the previous International Standards on Quality Control (ISQC).
A. Purpose and Scope of ISQMs
- Firm-Level Quality Management: ISQMs guide audit firms in establishing and maintaining quality management systems that promote consistent, high-quality engagements.
- Focus on Risk Management: ISQMs emphasize a risk-based approach to quality management, requiring firms to identify, assess, and respond to risks to audit quality.
B. Key ISQMs
- ISQM 1 – Quality Management for Firms that Perform Audits or Reviews of Financial Statements: Establishes the principles and requirements for a firm’s system of quality management, focusing on governance, ethics, engagement performance, and monitoring.
- ISQM 2 – Engagement Quality Reviews: Provides guidance on the requirements and responsibilities for engagement quality reviews, ensuring that key engagements are subject to additional scrutiny.
6. Relationship and Integration Between ISAs and Other Standards
While ISAs focus specifically on financial statement audits, the other IAASB standards (ISREs, ISAEs, ISRSs, and ISQMs) provide comprehensive guidance for a broader range of assurance and related services. Together, these standards create a cohesive framework that ensures consistency, quality, and reliability across all types of audit and assurance engagements.
A. Complementary Nature of the Standards
- Unified Framework: The IAASB’s standards are designed to complement each other, ensuring that auditors can deliver high-quality services across various engagement types. For example, while ISAs guide financial statement audits, ISAEs provide guidance for non-financial assurance, and ISRSs cover agreed-upon procedures.
- Consistency Across Engagements: The consistent structure and principles across the IAASB’s standards promote uniformity in auditing and assurance practices, regardless of the type of engagement.
B. Application in Practice
- Tailored Application: Auditors apply different standards depending on the nature of the engagement. For example, a financial statement audit would follow ISAs, while an engagement to provide assurance on sustainability reporting would follow ISAEs.
- Integrated Quality Management: ISQMs ensure that all engagements, whether audits, reviews, or related services, are conducted under a robust quality management framework, promoting consistency and excellence in all assurance services.
The Comprehensive Framework of IAASB Standards
The International Standards on Auditing (ISAs), along with other IAASB standards—ISREs, ISAEs, ISRSs, and ISQMs—form a comprehensive framework that guides auditors in delivering high-quality, consistent, and reliable assurance and related services. While ISAs focus on financial statement audits, the other standards address the diverse needs of stakeholders for assurance on non-financial information, limited reviews, agreed-upon procedures, and firm-level quality management. Together, these standards ensure that auditors are equipped to meet the evolving demands of the global auditing and assurance landscape, fostering transparency, accountability, and public trust in financial reporting.