Module 16: International Standards on Auditing Implementing ISA Lessons learned in the Czech Republic…

Module 16: International Standards on Auditing

Implementing ISALessons learned in the Czech RepublicPetr Kriz17 January 2006

Agenda

1 Introduction and initial thoughts2 National auditing standards in 90th 3 Bridge to direct application of ISA after 20004 Lessons learned5 Questions and answers

Section One


17 January 2006Page 4

Introduction – My relevant experience

PricewaterhouseCoopers

Since 1991 Partner since 2003

Czech Chamber of Auditors (CACR)

1995-1999 CACR Auditing Standards Committee

1998-2000 CACR Board Member

2000-2001 CACR Vice-President

2001-2004 CACR President

Fédération des Experts Comptables Européens (FEE)

Since 2002 FEE Council Member

Introduction and initial thoughts


Introduction – Auditing Standards in the Czech Republic

1992 Establishment of the Chamber (CACR)

1993 First four Czech national auditing standards (CNAS) issued

1994-2001 Issued 23 further general CNASs

1998-2002 Issued 5 specialised CNASs

2003 World Bank ROSC on accounting and auditing completed

2003 CACR Board decision on full adoption of ISAs

2004 National action plan on accounting and auditing completed

2004-6 Gradual completion of the ISA implementation

2005 First National Application Guidelines on ISAs



Initial thoughts

• The law authorised the Chamber of Auditors to issue CNAS based on international standards

• CNAS were developed by Auditing Standards Committee which was one of the professional committees of the Chamber and finally approved by the Chamber Board

• CNAS always based on existing ISAs

• Any deviations from ISAs needed to be justified and explained

• ISAs were usually translated and usedas a basis for development of a particular CNAS


Section Two



First Czech National Auditing Standards issued in 1993

National auditing standards in 90th

CAS 1 Objectives and principles of audit

CAS 2 Audit evidence

CAS 3 Audit report on financial statements

CAS 4 Audit working papers

Supplemented by CACR Board recommendation to use ISAs for areas not covered by CNAS.


Further general Czech National Auditing Standards


During 1994 and 2001 further 23 CNASs were prepared by the Auditing Standards Committee and approved by the Board. All were based on the respective ISA.


Five specialised Czech National Auditing Standards


CAS 51 The relationship between bank supervisors and external auditors

CAS 52 Operational review and audit of financial statements of local governments

CAS 53 Audit issues related to Year 2000 (cancelled in 2002)

CAS 54 Review of Intra-group relations reports

CAS 55 Audit of not-for-profit organisations

These are covering special areas, particularly audits of specific entities or special work required by national law.

CAS 52, 54 and 55 remain valid after ISA introduction.


Practical comments

• Diversified composition of the Auditing Standards Board

• Since 1999 new draft standards exposed to comments by auditors, MoF, CNB (banking regulator) & Czech SEC

• Challenging Board review of proposed standards

• CNAS enforced by the inspections of the Supervisory Committee


Section Three



Reasons for direct application

• Full harmonisation with international rules• Perception of audit reports from international community• Delays in approvals of new ISAs• Problems with updates of existing CNAS following ISA revisions

Bridge to direct application of ISA after 2000

• Fight with national creativity

• Allowed reduction of expert involvement in the standard setting process

• Auditing Committee can focus on monitoring developments and commentson new draft ISAs


Gradual implementation• Discussed by the Auditing Standards Committee in 2003

• Board decision taken and communicated in June 2003

• For 2003: ISAs recommended for IFRS FS audits

• For 2004: ISAs optional instead of CNAS, which were allowed

• For 2005: ISAs required for all financial statement audits

• For 2006: ISAs required also for other assurance and related services



Implementation process• Agreed terms for official translation with IFAC

• Established Editorial Board for ISA Translation (EB)

• Agreed co-operation on translation with large firms

• Translation completed by large firms in 2004, reviewed by EB

• Updates done in 2005

• Full IFAC Book distributed to auditors on CDs free of charge in the autumn (every year since 2004)

• National implementation guidelines developed in 2005


Section Four



Key lessons from the ISA application and implementation

• Generally positive, no significant national specifics except special audit work generated by other legislation

• Implementation by audit firms generally at adequate level

• Smaller practices and sole auditors often struggling with the complexity and compliance levels are sometimes lower

• Critical aspects of implementation are communication strategy, gradual implementation and proper training programs

• Quality assurance and enforcement by professional body or public oversight is needed to improve compliance

Lessons learned


Practical notes on the translation process

• EB needs to be well composed of people strong in auditing and English language

• Key terms vocabulary needs to be agreed by the EB and made obligatory for translators

• Translators allowed to propose changes to EB

• Proper review of translation

• Final editorial unification of the work before issue

• Improvements and corrections to be made every year

Lessons learned

ISAs implementation in the Czech Republic are clearly positive development from

the IAS-based national auditing standards.

The decision of the Czech Chamber on ISA implementation anticipates the new 8th Directive requirement and will ease its implementation.

Section Five


??

Questions and answers

Documents

Module 16: International Standards on Auditing Implementing ISA Lessons learned in the Czech Republic…