Objective
Objective
The objective of this project was to redraft the close off version of ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurements and Disclosures), in accordance with the clarity drafting conventions agreed by the IAASB to be applied to all ISAs, and to revise it to include auditing considerations relating to fair value accounting estimates and disclosures. The IAASB approved ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures in December 2007. The ISA was published in February 2008 after the Public Interest Oversight Board has confirmed that due process was followed in its development. The ISA is effective for audits of financial statements for periods beginning on or after December 15, 2009. A Basis for Conclusions provides background to the project, main comments received on the exposure draft, and the IAASB's conclusions regarding these comments in developing the final standard.
Background
In December 2004, the IAASB issued an exposure draft of proposed ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurements and Disclosures).
The IAASB gave due consideration to the comments received on the proposed ISA and also consulted further with the IAASB Consultative Advisory Group. The basis for the IAASB's conclusions is explained in the Basis for Conclusions: ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurements and Disclosures).
The IAASB approved the close off version of ISA 540 (Revised) (i.e., following the IAASB's current drafting conventions) in September 2006. That document incorporates the changes based on the comments received on the December 2004 exposure draft.
The IAASB asked that the task force redraft ISA 540 (Revised) in accordance with the clarity drafting conventions, together with the necessary revisions such that matters of continuing relevant in ISA 545, Auditing Fair Value Measurements and Disclosures, is incorporated in one combined ISA dealing with the audit of accounting estimates, including fair value accounting estimates.
Task Force progress / Board discussions to date
In December 2006, the IAASB approved an exposure draft of proposed ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures.
The proposed ISA has been redrafted in accordance with the clarity drafting conventions agreed by the IAASB to be applied to all ISAs. The proposed ISA has also been revised to include auditing considerations relating to fair value accounting estimates and disclosures, incorporating and updating material of continuing relevance contained in ISA 545.
Forty-four comment letters were received. A summary of significant comments and proposed ISA were discussed at the September 2007 IAASB meeting. The significant comments included the following:
- The need for additional material to address fair value accounting estimates within the ISA;
- The formation of a Working Group to assess the potential to develop additional implementation guidance;
- The use of an expert to obtain audit evidence regarding accounting estimates; and
- The auditor's responsibilities regarding disclosures.
The IAASB approved ISA 540 (Revised and Redrafted) in December 2007.