CLARITY PROJECT

What is clarity project

At the same time the convergence of US accounting standards with International Financial Reporting Standards (IFRS) was taking place, the Auditing Standards Board (ASB) was conducting the Clarity Project. The Clarity Project is intended to revise and re-codify US generally accepted auditing standards (US GAAS) to make auditing standards easier to read, understand and implement in practice, while at the same time converging US GAAS with the International Auditing and Assurance Standards Board of the International Federation of Accountants.
As a result of the Clarity Project, a clarified statement on auditing standard (SAS), Forming an Opinion and Reporting on Financial Statements, was issued. This clarified SAS requires the auditor’s report to be in a new format, and it also will contain additional required verbiage. The new format is required for periods ending on or after December 15, 2012.
 

In serving the public interest, the International Auditing and Assurance Standards Board (IAASB) sets high-quality international auditing and assurance standards. The IAASB recognizes that standards need to be understandable, clear, and capable of consistent application. These aspects of clarity serve to enhance the quality and uniformity of practice worldwide.

In 2004, the IAASB began a comprehensive program to enhance the clarity of its International Standards on Auditing (ISAs). This program involved the application of new drafting conventions to all ISAs, either as part of a substantive revision or through a limited redrafting, to reflect the new conventions and matters of clarity generally.

On February 27, 2009, the Clarity Project reached its completion when the Public Interest Oversight Board approved the due process for the last several clarified ISAs. Auditors worldwide will now have access to 36 newly updated and clarified ISAs and a clarified International Standard on Quality Control (ISQC).

 Changes Resulting from the Clarity Project

Improvements arising from the Clarity Project broadly compromise the following:

• Identifying the auditor's overall objectives when conducting an audit in accordance with ISAs;
• Setting an objective in each ISA and establishing the auditor's obligation in relation to that objective;
• Clarifying the obligations imposed on auditors by the requirements of the ISAs and the language used to communicate such requirements;
• Eliminating any possible ambiguity about the requirements an auditor needs to fulfill; and
• Improving the overall readability and understandability of the ISAs through structural and drafting improvements.

Auditors and others should look to ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing, for assistance in understanding the purpose and scope of an audit. This ISA sets out how the objectives, requirements, and guidance in all ISAs are to be understood.

Effective Date 

All clarified ISAs will be effective for audits of financial statements for periods beginning on or after December 15, 2009. The publication, Effective Date for IAASB's Clarified International Standards on Auditing, provides the rationale for determining the effective date, a link to the timetable for the project, and important considerations regarding implementation.

The effective date balances the need for those using the standards to have sufficient time to translate and implement them, with the desire that users of financial statements should benefit from them as soon as possible.

The IAASB has agreed, subject to any unforeseen circumstances, not to issue any additional auditing standards that would become effective in the next two years. This responds to requests the IAASB has received from stakeholders for a period of stability in the standards, as jurisdictions focus on the task of implementing the clarified ISAs and redrafted ISQC 1.

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Background to the Clarity Project

In 2004, the IAASB began a comprehensive programme to enhance the clarity of its International Standards on Auditing (ISAs). The broad aim of the project was to enhance the understandability of the ISAs, which should encourage consistent application and lead to an improvement in audit quality worldwide. In addition to this enhanced understandability, many of the ISAs have been revised, resulting in substantive changes to the contents of the ISAs. A summary of the changes introduced by the Clarity Project are as follows:

• 19 ISAs and ISQC 1 have been redrafted to apply the new Clarity conventions and format (see discussion below) – these are referred to as ‘Redrafted ISAs’
• 16 ISAs contain new and revised requirements, in addition to being redrafted to apply the new Clarity conventions and format – these are referred to as ‘Revised and Redrafted ISAs’
• A standard has been issued on a new topic – ISA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management.

·         While we've all been focused on the desperate tactics of the IASB to shove IFRS down everyone's throats and make it seem way cooler than lame old GAAP, the AICPA Auditing Standards Board (ASB) has been quietly aligning its agenda with that of the International Auditing and Assurance Standard Board (IAASB). Dubbed The Clarity Project, the goal was to converge U.S. GAAS and international standards on auditing (ISAs) in the first total recodification of GAAS since 1972.

·         The ASB's clarified auditing standards are effective for periods beginning after December 15, 2012 which means they will be eligible to be tested on the CPA exam as early as July 2013.

·         What this means for current and soon-to-be CPA exam candidates is that you should probably aim to get Audit out of the way before the new standards show up just to save yourself some study time.

·         According to Dr. Bill Hillison, Professor Emeritus of Accounting at Florida State University and co-author of Gleim CPA Review Auditing materials, “The AICPA’s Auditing Standards Board redrafted its standards into a new Codification of Statements on Auditing Standards to make U.S. Generally Accepted Auditing Standards (GAAS) easier to read, understand, and apply. A goal of the ASB was to converge the standards with the International Standards of Auditing (ISA) and to eliminate the duplication that existed in the current standards.”

·         “It's not as bad as it looks,” says Dr. Hillison. “While there are some areas that dramatically changed, many of the standards remain basically the same conceptually.”