DTT Letter to IAASB on IFRS and audit issues in recent IASB proposals 20 10 2006  2
3 Pages
English
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DTT Letter to IAASB on IFRS and audit issues in recent IASB proposals 20 10 2006 2

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3 Pages
English

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Deloitte Touche Tohmatsu 1633 Broadway New York NY 10019 U.S.A. Tel: 1 212 492 4000 Fax: 1 212 492 4228 www.deloitte.com 20 October 2006 Mr. John Kellas Chairman International Auditing and Assurance Standards Board 545 Fifth Avenue, 14th Floor New York, NY 10017 Dear Mr. Kellas, Identification of Significant Audit Issues in Recent IASB proposals We appreciate the opportunity to comment on the request from the International Auditing and Assurance Standards Board (IAASB) for identification of significant audit issues in recent proposals by the International Accounting Standards Board (IASB). We have concerns about measuring some items in the financial statements at fair value, including whether it is possible to develop sufficient accounting and auditing guidance on measuring fair value reliably. In the appendix to this letter, we have referred to significant audit issues that we have included in our recent comment letters to the IASB as well as an issue arising out of practice. In previous years, we have also highlighted audit issues and concerns around fair value measurement more generally, and specifically on financial instruments and share-based payments. In future, we will seek to incorporate into our comment letter process alerting the IAASB when we identify significant audit issues arising out of IASB proposals. We commend the IAASB to comment directly to the IASB on significant audit issues at least in respect of ...

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Deloitte
Touche
Tohmatsu
1633 Broad
way
New York
NY 10019
U.S.A.
Tel:
1 212 492 4000
Fax:
1 212 492 4228
www.de
loit
te.
com
20 Octo
ber 2006
Mr. John Kellas
Chairm
an
In
ternational
Audi
ting and
Assurance Standards Board
545 Fifth Aven
ue, 14th Floor
New
York, NY 10017
Dear Mr. Kellas,
Identification of Significant Audit Issues in Recent IASB proposals
We
apprecia
te
the
op
portunity
to
comment
on
the
req
uest
from
the
In
ternational
A
uditing
and
Assurance
Standards
Board
(IAASB)
for
identification
of
significant
audit
iss
ues
in
recent
proposal
s
by the In
ternational Acco
unting Standards Board (IASB).
We
have
concerns
about
measuring
some
i
tems
in
the
fin
ancial
statements
at
fair
val
ue,
incl
uding
whe
ther
it
is
pos
sible
to
develop
sufficient
accoun
ting
and
auditing
g
uidance
on
measuring
fair
val
ue
reliably.
In
the
ap
pendix
to
this
let
ter,
we
have
referred
to
significant
audit
iss
ues
that
we
h
ave
incl
uded
in
our
recen
t
commen
t
let
ters
to
the
IASB
as
well
as
an
iss
ue
arising
out
of
practice.
In
previous
years,
we
have
al
so
highligh
ted
audit
iss
ue
s
and
concerns
aro
und
fair
val
ue
measu
remen
t
mo
re
generally, and s
pecifically on fin
ancial instrume
nts and share-based payments.
In
future,
we
will
seek
to
incor
porate
into
our
comment
let
ter
process
alerting
the
IAASB
when
we
identify signific
ant audit iss
ues arising out of IASB proposals.
We
commend
the
IAASB
to
comment
directly
to
the
IASB
on
significant
audit
iss
ues
at
least
in
res
pect
of
key
projects
as
this
will
send
clear
and
strong
mess
ages
on
behalf
of
the
audit
profes
sion
at
large.
In
particular,
we
wo
uld
highlight
the
current
joint
discussion
pa
per
from
the
IASB
and
the
U
S
Financi
al
Acco
un
ting Standards Board (FASB)
dealing wi
th the Conceptual Framework.
This project
incl
udes
f
und
amental
discussions
around
the
objective
of
fin
ancial
reporting
and
fair
val
ue
measu
rement.
We
do,
however,
have
a
conce
rn
a
bout
the
m
anner
in
which
comment
s
about
auditability
should
be
phrased.
If
the
IAASB
we
re
to
say
pu
blicly
that
a
fair
val
ue
measurement
c
annot
be
a
udi
ted
to
the
level
of
reasonable
assurance,
then
the
logical
con
seq
uence
would
be
for
auditors
to
qualify
thei
r
o
pinions
d
ue
to
a
sco
pe
limitation
since
they
co
uld
no
t
obtain
reasonable
assurance.
Ultima
tely
some
sort
of
recognition
that
fair
val
ue
measurements
are
not
m
ade
at
a
reasonable
assurance
level
i
s
necessary.
We
believe
that
it
would
be
bet
ter
for
the
level
of
assurance
or
“preci
sion”
of
such
measu
rement
s
to
be
disclo
sed
in
the
financial
statements
rather
than
thro
ugh
a
sco
pe
limitation
exp
res
sed in the auditor’s report.
Page 2
Deloitte Touche Tohmatsu
October, 2006
We would be pleased to discuss our letter with you or your staff at your convenience.
If you have any
questions, please contact P. Nicholas Fraser at +33 1 55 61 21 87 or Ken Wild at +44 20 7007 0907.
Very truly yours,
Page 3
Deloitte Touche Tohmatsu
October, 2006
APPENDIX
AUDIT ISSUES HIGHLIGHTED IN RECENT COMMENT LETTERS TO THE IASB
In our comment letters on IASB proposals since January 2005, we have raised the following specific
concerns regarding audit issues:
In October 2005, we raised concern on the Proposed Amendments to IFRS 3 Business
Combinations in relation to valuation issues on grossing up goodwill, estimation of fair
value of businesses, exposure to second-guessing by regulators and litigants (see page 2 in
our comment letter from October 26, 2005).
Also in October 2005 and in the same letter, we highlighted practical implications of
requiring adjustment of comparative information for prior periods for "measurement period
adjustments" under the Proposed Amendments to IFRS 3 Business Combinations, when
predecessor auditors are unable to reissue an audit opinion on statements changed as a result
of retrospective application due to independence matters and other predecessor auditor issues
(see page 12 of the letter from October 26, 2005).
In our comment letter from October 27, 2005 on the Proposed Amendments to IAS 37
Provisions, Contingent Liabilities and Contingent Assets, we stated on page 1 that we do not
support the suggested changes, except for the proposals for restructuring provisions.
We do
not think that the Board’s choice of a single measurement attribute is appropriate.
As such,
we find the majority of the changes proposed in the ED fail to achieve an improvement in
financial reporting for one or more of the following reasons:
The proposals will not provide sufficiently reliable and relevant information to users
of financial statements.
The proposals and their rationale, are confused and/ or confusing.
In particular, the
proposals separate recognition and measurement for what are currently known as
contingent liabilities and these are not readily separable in practice.
In their current form, the proposals cannot be implemented in such a way that the
necessary high degree of consistent application can be achieved.
In March 2006, we made comments about undervaluing significant audit issues in the
Discussion Paper on Management Commentary in order to assert compliance with IFRS,
including increase audit time and cost similar to those required by Sarbanes Oxley, Section
404 (see page 4 in our comment letter from March 17, 2006). Further, we do not believe that
it is within the IASB's mandate to make a requirement for consistency between the
management commentary and the IFRS financial statements. This is already addressed by
the auditing guidance issued by the IAASB (see page 6 of the same letter).
For further information, we refer to our comment letters on
www.iasplus.com
under "Deloitte
Comment Letters".
In April 2006, we were also made aware of the issue of whether pro forma disclosures in IFRS 3,
paragraph 70 about entities in business combinations as if combined since the beginning of the
period could be audited. It was agreed that they should be audited under the auditing guidance issued
by the IAASB. But concerns were raised on whether there are appropriate criteria to audit it against.
This is different in the United States, where such disclosures do not need to be audited.