With ISA 315 revised by the IAASB, auditors in the UK have had to re-think their approach to risk assessment. But what is ISA 315 and what exactly has been revised? We summarise the information you need to know.
What is ISA 315?
ISA 315 is an abbreviation for the ‘International Standards of Auditing 315, Identifying and Assessing the Risks of Material Misstatement’.
Issued by the International Auditing and Assurance Standards Board (IAASB), the professional standard addresses an auditor’s responsibility to identify and assess the risks of material misstatement in financial statements by furthering understanding of the business/entity and its environment.
When is ISA 315 effective from?
ISA 315 (Revised 2019) came into effect for all audits on periods beginning on or after 15th December 2021. From an auditing perspective, this means the revised standards will affect 31st December 2022 year end onwards.
Why was ISA 315 revised?
The ISA 315 changes were made for a number of reasons. The revision intends to raise the overall quality of audit standards and ensure consistency in application within the UK by creating a more robust and evidence-based risk assessment process.
The changes made to the standard also aim to provide auditors with greater understanding of the entity being audited, the entity’s environment and the impact that changing environmental factors can have.
Additionally, the standard was revised in response to the changing audit environment, in particular the risks presented by the increasing use of IT in the workplace.
How has ISA 315 changed?
The 2019 revision has introduced the most significant ISA 315 changes since 2003. In summary, changes have been made to the way risk is assessed and measured, the requirements for understanding an entity’s IT environment and the use of professional scepticism throughout the audit.
Some of the most notable changes include:
- Five new risk factors to make risk assessments more comprehensive: subjectivity, complexity, uncertainty, change and susceptibility to misstatement due to management bias or fraud
- A new risk spectrum, with different levels of risks detailed on a scale
- Sufficient and appropriate evidence must be obtained from risk assessment procedures to form the basis for the assessment
- An increased focus on IT, specifically IT general controls
- New detail on controls that are relevant to audit, as well as the design and implementation work needed in relation to the controls
- New material has been added on considerations specific to smaller entities
What impact has ISA 315 revised had at PKF Smith Cooper?
ISA 315 revised has had a significant impact on audit procedures at PKF Smith Cooper. You can read a detailed account of the changes we have made as a result of the revisions in our ISA 315 case study.
Our Audit Director Barbara Sims explains how the changes continue to influence our services: “The revisions to ISA 315 have in some ways been welcomed as they provided some much-needed clarity from regulators on how audit firms should approach the risk assessment process. We have managed to successfully navigate the changes, but it is by no means a finished project.
“We will continue to scope out improvements to our existing approach using client feedback, team insights and updated guidance from our firm’s regulators, to make sure we continually provide our clients with efficient, high quality and compliant audits.”
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