Audit Manager at RSM Poland
Introduction of International Auditing Standards (hereinafter: ISAs) in Poland offers a huge opportunity of improving the quality of audit services, and thereby the quality of financial statements themselves for the benefit of all interested parties (management boards, shareholders, prospective investors and statutory auditors).
ISAs, which means..?
ISAs are global standards according to which statutory auditors conduct audits and other related services (ISAs are binding for entities auditing/reviewing financial statements of public interest entities for the periods ended 31 December 2016 and later, whereas for entities that do not audit/review financial statements of public interest entities – for the periods ended 31 December 2017 and later).
Although ISAs apply directly to statutory auditors, their introduction will also bring value added to entrepreneurs. The essence of ISAs is audit based on risk. An auditor who carries out an audit focuses on understanding business activity of the audited entity, recognizing possible risks and assessing influence of the mentioned risks on the financial statements. The audit will be more adjusted to the needs of clients and the auditor will become a real advisor and a business partner, instead of being just an external controller.
Provisions of existing standards were not contrary to ISAs. However, ISAs include more guidelines, descriptions of factual circumstances and recommendations with regard to issues that have not been regulated, and therefore, the risk that an auditor will omit material procedures is considerably lower in the case of audits based on ISAs.
ISAs – more than just guidelines
We should not forget that ISAs, apart from offering guidelines for audits and reviews, help auditors provide other services, among which it is worth mentioning data compilation, verification of financial forecasts or agreed-upon procedures engagements. Let’s imagine that an entrepreneur uses services provided by an audit company but, in certain key issues, they would like to have another expert’s opinion or do not necessarily want to change the auditor, but first, to check if they can trust some other advisors. In such case, they may first ask the prospective new auditor to perform the so called “agreed-upon procedures engagement”, i.e. verification of most important data - the task that may turn to be a good start of successful cooperation with the chosen auditor.
The aim of ISAs defined at the beginning of this article, namely improving the quality of audit services and the quality of financial statements is definitely a worthy aim and can be surely achieved through the introduction of ISAs. It is the right implementation of these standards, however, and the cooperation of the interested parties – auditors, entrepreneurs as well as financial market supervision that can ensure the expected improvement.
There is a risk that audits will be practically conducted in the same old way (with no regard to ISAs) and only theoretically performed in compliance with the international standards. Since some of auditors (e.g. RSM or generally the companies belonging to bigger networks) have been working according to ISAs for years, other entities will be forced to adjust their approach to the mainstream. This adjustment should be required not only by institutions responsible for the supervision of the financial market but also, which may seem quite a surprise, by entrepreneurs themselves (managements or owners). Why? It is managements and owners who are particularly interested in current and reliable information, and this is the undoubtful role of financial statements. The entrepreneur who is familiar with ISAs (of course not their technical details but the general idea) and who expects the decent quality of audit services, will certainly appreciate the role and work of a professional auditor.
I am full of optimism. Introduction of new standards will improve the quality of audit services, providing that ISAs will be consistently implemented and complied with – but in this process we should all participate (directly or indirectly). Entrepreneurs and auditors are business partners and they share the same goals.