1. Relevant IAASB Developments

2. Theoretical arguments for and against Harmonisation of Auditing Standards FOR Aids consistency of group audits and international monitoring of quality National standard setting a costly process AGAINST Over complicates standards for small audits Legal requirements differ between countries Competition in standards is a ‘good thing’

3. Practical forces leading to harmonisation of Auditing Standards Securities regulators want higher quality (IOSCO) Statutory Audit Directive (EC) New audit monitoring activities in many countries needing to work together (IFIAR) Large firms have difficulty with different audit standards in different countries. IAASB

4. UK already harmonised with existing ISAs APB issued ISAs (UK & Ireland) in December 2004 for audits of accounting periods commencing on or after 15 December 2004 Based on ISAs Includes ‘+’s’ from existing UK auditing standards

5. But ISAs are going to change! 1.Clarity Project 2.Revisions

6. IAASB Clarity Project Origins Status of ‘present tense’ guidance Disquiet about length and complexity of latest ISAs Questions as to the usability of new ISAs (especially small practitioners) Difficulties of linking ISAs to law

7. Main features of Clarity Project Set an objective in each standard Clarify Professional Requirements –Use ‘shall’ to identify requirements –Eliminate the use of the present tense to describe actions Improve the structure and readability

8. Structural Improvements Four principal sections: Introduction Objective Requirements Application material

9. ISAs to be ‘revised and clarified’ –Groups –Qualified opinions –Related parties –Communication with those charged with governance –Materiality –Accounting estimates/fair values –Management representations –Experts –External confirmations –Terms of engagement –Service organisations

10. ISAs to be ‘clarified’ Recently revised –Audit risk –Fraud –Quality Control –Planning –Auditor’s Reports –Documentation Not revised for some time –Laws and regulations –Analytical procedures –Sampling –Subsequent events –Comparatives

11. Likely Timetable 2009200820072010 IAASB completes Clarity Project Likely IAASB Effective Date

12. Statutory Audit Directive – Article 26 The EC may decide on the applicability of international auditing standards only if they: a)have been developed with proper due process, public oversight and transparency and are generally accepted intentionally, b)contribute a high level of credibility and quality to the annual accounts, and c)are conducive to the European public good. EU Member States may impose additional requirements relating to statutory audits for a period expiring on 29 June 2010.