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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 website

contains 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 task

force’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 .