ASB Update as of January 31, 2006
Douglas F. Prawitt, Brigham Young University
Academic Member of the AICPA Auditing Standards Board
I was appointed to the Auditing Standards Board effective January 1, 2006, and attended my first board meeting January 10-12 in San Diego. The most significant development since the last ASB update published in the Spring 2005 Auditor's Report, is that the ASB has issued eight very significant Statements on Auditing Standards relating to the assessment of risk in an audit of financial statements. Consistent with the Board's new strategic direction, the ASB worked closely with the International Auditing and Assurance Standards Board to promote the convergence of U.S. and international auditing standards. These risk assessment standards are an important step in the AICPA's efforts to develop stronger and more definitive auditing standards to enhance auditor performance and improve audit effectiveness for the audits of non-public entities. The eight risk assessment standards were issued together because their concepts are closely interrelated. The Statements will be effective for audits of financial statements for periods beginning on or after December 15, 2006, but early adoption is permitted.
The Board's executive summary released with the eight risk assessment standards indicates that these eight Statements:
…establish standards and provide guidance concerning the auditor's assessment of the risks of material misstatement (whether caused by error or fraud) in a financial statement audit, and the design and performance of audit procedures whose nature, timing, and extent are responsive to the assessed risks. Additionally, the Statements establish standards and provide guidance on planning and supervision, the nature of audit evidence, and evaluating whether the audit evidence obtained affords a reasonable basis for an opinion regarding the financial statements under audit. The primary objective of these Statements is to enhance auditors' application of the audit risk model in practice by specifying, among other things:
- More in-depth understanding of the entity and its environment, including its internal control, to identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them.
- More rigorous assessment of the risks of material misstatement of the financial statements based on that understanding.
- Improved linkage between the assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks.
The statements included in the "risk assessment suite" are listed below:
- Statement on Auditing Standards No. 104, Amendment to Statement on Auditing
- Standards No. 1, Codification of Auditing Standards and Procedures ("Due Professional Care in the Performance of Work")
- Statement on Auditing Standards No. 105, Amendment to Statement on Auditing
- Standards No. 95, Generally Accepted Auditing Standards
- Statement on Auditing Standards No. 106, Audit Evidence
- Statement on Auditing Standards No. 107, Audit Risk and Materiality in Conducting
- an Audit
- Statement on Auditing Standards No. 108, Planning and Supervision
- Statement on Auditing Standards No. 109, Understanding the Entity and Its
- Environment and Assessing the Risks of Material Misstatement
- Statement on Auditing Standards No. 110, Performing Audit Procedures in
- Response to Assessed Risks and Evaluating the Audit Evidence Obtained
- Statement on Auditing Standards No. 111, Amendment to Statement on Auditing
- Standards No. 39, Audit Sampling
Among others, the ASB is currently working on projects relating to communications by the auditor to those charged with governance and audit reports. These items will be summarized briefly in the next issue of The Auditor's Report.
Of particular interest to the Auditing Section membership, the ASB is interested in working with the Section to encourage research relevant to the Board's deliberations on audit reports. Stay tuned for further announcements and a forthcoming request for proposals from the Board.
|
