Issue 35 | July-September 2016
6
Staff Audit Practice Alert has been prepared by the IFRS 9 ECL Task
Group of the IRBA’s CFAS.
By developing this Staff Audit Practice Alert, the IRBA has responded
to the interest and concerns raised about the audit implications
of the ECL model incorporated into the International Financial
Reporting Standard (IFRS) 9, Financial Instruments, which becomes
effective for annual periods beginning on or after 1 January 2018.
In brief, under the impairment approach in IFRS 9 it is no longer
necessary for a credit event to have occurred (incurred credit losses)
before credit losses are recognised. Instead, an entity always
accounts for expected credit losses and changes in those expected
credit losses (lifetime expected credit losses/12-month expected
credit losses). This change in the impairment methodology has a
fundamental impact on the accounting for such losses and also
affects how an auditor audits such impairment losses.
This IRBA Staff Audit Practice Alert serves to provide registered
auditors with:
• The background to the risks and audit implications of IFRS 9
and the ECL model in the banking environment;
• A checklist that can be used by the engagement team when
considering certain audit implications of the ECL model; and
• Related notes.
The
IRBA websitecontains a list of links to relevant guidance
on IFRS 9 and the ECL model, and these have been developed
internationally and locally. The list references information that was
known to the IFRS 9 ECL Task Group at the time of issuing this
IRBA Staff Audit Practice Alert and it is not meant to be exhaustive.
This IRBA Staff Audit Practice Alert
does not constitute an
authoritative pronouncement
from the IRBA, nor does it amend
or override the International Standards on Auditing, South African
Standards on Auditing, South African Auditing Practice Statements
or South African Guides (collectively called pronouncements).
Also, this IRBA Staff Audit Practice Alert is not meant to be
exhaustive.
Reading this IRBA Staff Audit Practice Alert is not a
substitute for reading the abovementioned pronouncements, as
they are the authoritative texts.
Although this IRBA Staff Audit Practice Alert addresses the audit
implications of IFRS 9 and the ECL model on the audit of banks,
an auditor may find this publication, if adapted as necessary, useful
when auditing other entities that have adopted IFRS 9 and the use
of the ECL model.
The IRBA Staff Audit Practice Alert is available in PDF format and
may be downloaded from the
IRBA website.In addition, the IAASB is in the process of a holistic revision of
ISA 540,
Auditing Accounting Estimates, including Fair Value
Accounting Estimates, and Related Disclosures
(project proposal
approved by the IAASB in December 2015) and it issued a project update in March 2016, providing an overview of the ISA 540 taskforce’s initial thinking on the special audit considerations relating to
ECL provisions, including related estimation uncertainty.
Audit firms and auditors are encouraged to prepare for the implementation
and to also assess the impact of IFRS 9 on their audit strategy.
The
Proposed Guide for Registered Auditors:
Considerations for an Auditor or a Reviewer of a
Company which is Factually Insolvent
Comments on the Proposed Guide for Registered Auditors:
Considerations for an Auditor or a Reviewer of a Company which is
Factually Insolvent (this proposed Guide), which was issued in June
2016 for exposure for public comment, were due to the IRBA by 5
October 2016.
This proposed Guide may be downloaded from the
IRBA website.The CFAS sought comments from registered auditors and other
interested parties on all matters addressed in this proposed Guide
and responses to five specific questions set out in the Explanatory
Memorandum section.
Prescribed Auditor Reports for Medical Schemes
Registered auditors of medical schemes are advised that on 20 July
2016 the Council for Medical Schemes (the CMS) published the
prescribed auditor report templates effective for the 2016 financial
year in Circular 49 of 2016.
These statutory auditor reports were developed by the CMS in
consultation with the CFAS and its Medical Schemes Task Group,
which includes auditors of medical schemes. The report templates
are:
• ISA 700 (Revised) auditor report template: Report on the
Financial Statements.
• ISA 800 (Revised) and ISRE 2410 auditor report template:
Report on Parts 4 to 10 of the Annual Statutory Return.
• ISAE 3000 (Revised) auditor report template: Assurance Report
on Compliance with Sections 36(5) and 36(8) of the Act.
• ISA 810 (Revised) auditor report template: Report on the
Summary Financial Statements.
These auditor report templates are effective for medical schemes
with year-ends on and after 31 December 2016.
The individual auditor reports as well as the Guide for Registered
Auditors: Assurance Engagements on the Annual Financial
Statements and Annual Statutory Returns of a Medical Scheme
may be downloaded from the
IRBA website.Registered auditors are alerted to the fact that the Guide has not
been updated for ISAE 3000 (Revised), the new Auditor Reporting
Standards and ISA 720 (Revised), except for Appendix 5 – Report
on the Financial Statements (ISA 700 (Revised) Report); Appendix
6 – Report on Parts 4 to 10 of the Annual Statutory Return
(combined ISA 800 (Revised) and ISRE 2410 Reports); Appendix
7 – Assurance Report on Compliance with Sections 36(5) and 36(8)
of the Act (ISAE 3000 (Revised) Report); and Appendix 8 – Report
on the Summary Financial Statements (ISA 810 (Revised) Report);
which have been updated.
Circular 49 of 2016 is available on the
CMS website.STANDARDS c o n t .