Current IAASB Developments Prof. Arnold Schilder, IAASB Chairman James M. Sylph, Executive Director, Professional Standards Korean Institute of Certified Public Accountants Seminar Seoul, South Korea November 12, 2013

Responding to the Changing Audit Environment Auditor Reporting Responding to the Changing Audit Environment Evolving nature of financial reporting Changing demand from users (“we want to hear more”) Global financial crisis triggered key questions e.g., Quality of auditing – effectiveness, professional judgment, professional skepticism Relevance of audit and trust in the audit profession In June, IAASB unanimously approved Exposure Draft Informed by research, public consultation and global outreach

Opinion preferably first New section to address Key Audit Matters Auditor Reporting Key Proposals Opinion preferably first New section to address Key Audit Matters New section to address Going Concern New section to address Other Information when such information is presented with the audited financial statements Other suggested improvements to enhance transparency or clarify responsibilities Other Suggested Improvements include: Statement about independence and other ethical responsibilities Naming of the engagement partner (listed entities) Improved description of auditor responsibilities and key features of the audit

Key Audit Matters (KAM) – New ISA 701 Auditor Reporting Key Audit Matters (KAM) – New ISA 701 Objective: To communicate those matters that, in the auditor’s judgment, were of most significance in the audit of the financial statements of the current period Required for audits of financial statements of listed entities Selected from matters communicated with TCWG (e.g., Audit Committees) Engagement partner and team often will have an intuitive assessment of the areas of most significance or difficulty Note that: Proposed standard includes considerations for areas of “significant auditor attention” and robust application material to guide the auditor’s determination of KAM to be communicated in the auditor’s report

Going Concern (GC) – Revisions to ISA 570 Auditor Reporting Going Concern (GC) – Revisions to ISA 570 Heightened attention on GC, particularly in light of the global financial crisis New section in all auditor’s reports including statements about The appropriateness of management’s use of the GC basis of accounting in preparing the entity’s f/s Whether the auditor has identified a material uncertainty that may cast significant doubt on the entity’s ability to continue as a GC Active liaison with the IASB and US FASB to facilitate holistic approach New GC section will address: - The appropriateness of management’s use of the GC basis of accounting in preparing the entity’s financial statements Whether the auditor has identified a material uncertainty (MU) that may cast significant doubt on the entity’s ability to continue as a GC Related to IASB Liaison: Status and planned actions of IASB and FASB will need to be considered as the IAASB finalizes its auditor reporting proposals Also monitoring with interest the PCAOB project on going concern

Potential Benefits of the Proposed ISAs Auditor Reporting Potential Benefits of the Proposed ISAs Because it’s the key deliverable in a f/s audit, changes to auditor’s report will enhance its communicative value, and Have positive benefits to audit quality or users’ perception of it Increase users’ confidence in the audit and the financial statements Renew focus of the auditor on matters to be reported Enhance communications between the auditor and TCWG Increase/ improve attention by management and TCWG to f/s disclosures

Exposure draft open for comment through November 22, 2013 Auditor Reporting Looking Ahead Exposure draft open for comment through November 22, 2013 Represents a significant change in practice, but critical to the continuing perceived value of the audit and relevance of the profession Now is the time to begin thinking about how to prepare for the future to help ensure success From the point of view of both practitioners and users

Proposed Audit Quality Framework A complex, multi-faceted topic, in which ISAs are not the only influence Recognizes importance of financial reporting frameworks and corporate governance environments as important context factors Contributions to Audit Quality at engagement level, firm level and national level Contributions to strengthened public confidence in financial reporting Plans to finalize the Framework in December 2013

Proposed Audit Quality Framework Audit Quality Interactions The Audit Quality Framework demonstrates the importance of appropriate interactions between stakeholders as links in the financial reporting supply chain

Other Relevant IAASB Initiatives Other Information (OI) – ISA 720 (Revised) Objective of strengthening the auditor’s responsibilities for OI and establishing reporting requirements Scheduled for approval in Dec 2013, at which time the need for re- exposure will be considered Auditing Financial Statement Disclosures Aim of the project is to enhance the auditor’s work effort in relation to both quantitative and qualitative disclosures Exposure of changes to ISAs in mid-2014, also non-authoritative guidance

ISA Implementation Monitoring – Key Findings Professional Skepticism ISQC 1 and ISA 220 – Quality Control Specific focus on adequacy of EQCR ISA 600 – Group Audits Adequate involvement of group auditor, including in ‘letterbox’ audits, and component materiality ISA 315 – Risk Identification and Assessment Identification of significant risks, and work effort on controls relevant to the audit

IAASB’s Strategy and Related Work Program for 2015–2019 Priority Attention on auditing and quality control standards Address ISA Implementation Monitoring findings, to achieve enhanced consistency and effectiveness of practice Quality Control, professional skepticism, ISA 315, ISA 600 Support effective implementation of new Auditor Reporting standards Address auditing issues related to financial institutions, including FV estimates and loan impairment Continued attention to understanding ISA related inspection findings

IAASB’s Strategy and Related Work Program for 2015–2019 (continued) Proactively monitor developments in Integrated Reporting; consider assurance standard when appropriate Innovation, Needs and Future Opportunities (INFO) Working Group to explore other assurance developments Monitor adoption and implementation of review, compilation and other assurance standards Continued dialogue and collaboration with stakeholders Collective input assists in finding meaningful and workable solutions to some of the very challenging issues facing the profession today