Tatiana Bezus, Head of Audit at PKF MEF-Audit, on the introduction of ISA in Russia in 2017
28 Nov 2017
"The key difference of international standards is the risk-oriented approach"
Since 2017, Russia has introduced the International Standards on Auditing (ISA). Head of audit department at PKF MEF-Audit Tatyana Bezus told RBC + in an interview what changes await auditors and their clients in connection with the adoption of ISA.
What are the main differences between the ISA and the Federal Standards on Auditing (FSA)?
Formally, in most cases, the ISA does not significantly differ from the FSA, because at one time FSA was developed on the basis of ISA. Unfortunately, the process of development of our national standards was much slower than the improvement of ISA, Russian standards did not keep pace with changes in the international standards. However, at the present time all innovations in the ISA have immediately become mandatory for Russian auditors. Accordingly, domestic auditors will quickly adapt to international requirements, the conclusions based on the results of their audit and the quality of the audit itself will comply with the actual international standards.
The unconditional advantage of the ISA is that it has a very clear structure, all standards are cross-referenced and include the International Standard on Quality Control, they represent, so to speak, an "audit code". In addition, there are a number of international standards that have no analogues in the FSA. For example, standards that regulate the communication about the deficiencies of internal control, audit procedures for the assessed risks.
How important are these procedures?
The essence is rather in general approaches than in specific procedures. The key difference between international and Russian standards is that the ISA has adopted a risk-oriented approach. The FSA also contain references to risks and their identification, but they do not provide an in-depth methodological definition; do not describe how to address these risks; how they should affect the scope of the audit; and how to take them into account when preparing an audit report. In the ISA special attention is paid to this issue - the approach to the audit is determined on the basis of risks assessment of the entity being audited, the risks of misstatement of financial statement in whole and the risks inherent to particular items/captions or processes. In the FSA the approach is more formal and standardized.
That is why the ISA pays special attention to the evaluation of the internal control systems of the organisation being audited, mandatory auditor deliverables on the results of testing of the internal control system are established. There is a special standard that indicates how this information should be communicated to the management of the entity being audited, to the representatives of the owner and those charged with governance, and what aspects should be emphasised.
What does this mean in terms of the customer of audit services?
In international standards much attention is paid to interaction with the entity being audited, with decision-makers and those responsible for corporate governance. These are the Board of Directors, internal audit, internal control and risk management - in short, all those persons who can influence the making of important decisions with respect to financial statements. On this point in the FSA only the management and representatives of the owners of the organisation being audited are mentioned, that is, the circle of the persons connected with the customer, with whom the auditor communicates and to whom reports the results, is much narrower. Of course, all this means greater involvement of employees and client managers in the audit process.
What efforts does the introduction of the ISA demand from auditors? Will the introduction of international standards increase the cost of their services?
In a number of cases, especially during the first audit of an entity, the introduction of the ISA demands broader scope of audit procedures and more detailed documentation. For example, in risk assessment, testing of the internal control system, and reporting on audit results. At the same time, if the risk-oriented approach is correctly implemented, it will become more comfortable for the auditor, since it allows us to revise the approach to the audit in general and make it more effective. This is rather an advantage for auditors than for users of financial statements. So we do not expect the price increase due to the introduction of the ISA.
And what do users of financial statements get?
It is generally accepted that the opinion issued on the basis of the ISA increases the users’ confidence in the quality of the audit. It is natural, since the ISA was developed taking into account the best practices of different countries, versatile experience, in the context of "freedom" from the characteristics of each country. For the same reasons, the application of the ISA ensures comparability of audit results. This is important for all users of the financial statements, because it allows you to compare the statements of companies, since their audit was conducted using the same methods and approaches.
One of the provisions of the ISA is the obligation of the auditor to publicly disclose key audit matters. What are usually these matters?
- This requirement concerns only the results of the public companies audit. Key matters mean the most significant ones for audit from the point of view of risks, requiring special attention from management, shareholders, investors, counterparties. As a rule, these matters require the involvement of high level auditors - partners who sign the audit opinion. These matters are usually determined at the planning stage and are discussed by the auditor together with the entity being audited.
Who and how verifies the correct application of the ISA by audit organisations? Are there the same or similar procedures for members of international audit networks?
Compliance of the auditor and the quality of its work to the ISA is reviewed, first of all, by self-regulating organisations of auditors (SRO). If we’re talking about public company audit, then, in addition to SRO, the review is also performed by the Federal Treasury.
As for the audit networks, their members undergo periodic quality control review within the network. But in fact, this control has no direct relation to the ISA. The requirements of international networks for the audit quality are usually stricter than the requirements of the ISA when it comes to recognized networks such as PKF International, that being a member of the International Association of Accountants, IFAC, took an active part in the development of the ISA. That is logical: network membership is voluntary, whereas compliance with standards is a necessary condition for conducting audit activities.