ACCOUNTING & TAX
Changing International Standards on Auditing and its impact on the sport sector Two significant changes to the International Standards on Auditing (ISA) are now in place for year ends from 31 December 2020 onwards. Greater scrutiny, expectations and fines on audit firms means more work and resources are now necessary to complete an audit, and that could affect your bottom line. Tom Wilson, partner at haysmacintyre, covers the key changes and how to prepare for them. Early in 2020, I wrote an article on the regulatory audit environment and its potential importance. A relatively dry subject but also an important one for Finance Directors working in the sector. The reason why I am revisiting this topic is because two significant changes to the International Standards on Auditing (ISA) are now in place for year ends from 31 December 2020 onwards. Why should you be concerned about this? Simple economics: greater scrutiny, expectations and fines on firms means more work and resources are now necessary to complete an audit. There are several areas under particular scrutiny by regulators, but the key areas under reform are going concern and the auditing of key judgements and estimates. 28 | OTFF ISSUE 15 ★ APRIL 2021
Auditing standard on going concern (ISA 570) Auditors have had a head start in this area over the last twelve months, and the impact the pandemic has had on income streams and sustainability figure strongly in these assessments. Whilst we have been producing detailed cashflow forecasts with sensitivity to show how the organisation will be able to pay its debts, auditors must demonstrate an organisation’s ability to remain viable in a post-pandemic world. This requirement is more intensive for auditors and more onerous for company directors. There will be less room for the audit partner to use their judgment as ISA 570 requires auditors to provide a robust challenge to the assumption of going concern. On top of this, soft guarantees of funding of budget shortfalls are unlikely to meet the standard of proof. In the instances where there are fewer certain guarantees, there are likely to be more instances of emphasis of matter paragraphs in audit reports.
While the burden of challenge rests with the auditors, it is vital for organisations to be prepared: and documentation of what Finance Directors have done to review the going concern assumption will be required. This is particularly important as we begin to exit the pandemic. Auditing Standard on accounting estimates and key judgements (ISA 540). Whilst this standard is not new, this revision is significantly more prescriptive, itemising several new areas auditors must cover. The key changes concern: risk assessments of all significant areas of judgements and estimates within a set of financial statements, assessments of relevant controls surrounding estimates, and the completion of one of three procedures – review of post year end outcomes, review an entity’s calculation or reperformance of the calculation, and corroborate that calculation. There are specific references in the standard to evidencing professional scepticism
