ASB Update as of January 2007
Douglas F. Prawitt, Brigham Young University
Academic Member of the AICPA Auditing Standards Board
I began my last update with the joint ASB/IAASB/AAA research initiative, designed to gain a better understanding of users' perceptions of the auditor's report and explore ways in which the report might be revised to communicate more clearly. As I mentioned, this initiative represents a unique opportunity to participate in research that could have a direct bearing on the standard-setting process. To briefly summarize our progress since the last ASB Update, we received a total of eleven research proposals from the U.S. and overseas. The project task force evaluated the submissions in late 2006 and selected four very high quality proposals to be included on a "short list" for possible funding. Researchers who submitted proposals have been notified as to the status of their proposals. The project task force is now in the process of procuring additional monies with the intention that at least three of the projects can be funded. We anticipate that we will have funding in place and be able to finalize arrangements with selected research teams by the middle of February. I will give further details in the next ASB Update.
The ASB's exposure draft of a proposed SSAE titled Reporting on an Entity's Internal Control over Financial Reporting is on hold, pending the PCAOB's completion of AS No. 5, which revisits several fundamental concepts, including the definitions of significant deficiency and material weakness. In the meantime, to avoid confusion stemming from differences in terminology, the Board made conforming revisions to AT 501 to incorporate the terms, definitions, and guidance on identifying and evaluating control deficiencies that were introduced in SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit. The AICPA staff has developed an audit risk alert entitled Understanding SAS No. 112 and Evaluating Control Deficiencies: A Companion to SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit. This audit risk alert summarizes the important aspects of the new standard and presents a number of short case studies designed to guide the auditor though the process of evaluating identified control deficiencies.
In November 2006, the Board issued SAS No. 113, Omnibus 2006. This omnibus SAS amends the wording of the three general standards and the four reporting standards of the ten Generally Accepted Auditing Standards to conform to the Board's new "clarity" guidelines. The wording of the three field work standards was amended previously, so all ten GAAS now have been updated. SAS No. 113 also makes some minor amendments to SAS No. 99 to provide a clearer link between the auditor's consideration of fraud and the auditor's assessment of risk in accordance with the "risk assessment suite" (SAS Nos. 104-111). Finally, SAS No. 103, Audit Documentation, changed the date of the auditor's report from the "date of completion of fieldwork" to require that the auditor's report be "dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence to support the opinion on the financial statements." SAS No. 113 makes conforming amendments necessary to remove references to the completion of fieldwork throughout the codification of Statements on Auditing Standards.
The Board also voted in November to issue SAS No. 114, The Auditor's Communication with Those Charged with Governance, replacing SAS No. 61, Communication with Audit Committees. The new SAS requires the auditor to engage in two-way communication with those charged with governance about certain significant matters related to the audit, and also establishes standards and provides guidance on:
- Which matters should be communicated,
- Who they should be communicated to, and
- The form and timing of the communication.
The new SAS provides guidance on the communication process and, of course, uses the new phrase "those charged with governance," consistent with international standards and SAS No. 103. SAS No. 114 is applicable to audits of the financial statements of all nonissuers and is effective for audits of financial statements for periods beginning on or after December 15, 2006.
In July 2006, the ASB issued an exposure draft of a proposed SQCS, A Firm's System of Quality Control, that would replace all existing SQCSs. The comment period for the exposure draft ended on September 30, 2006. The ASB considered comment letters at its January 2007 meeting and will make further revisions before voting on the SQCS at an upcoming meeting.
The ASB is also considering a couple of additional agenda items, which could dramatically affect both the format of new and existing standards and the process for producing new standards. For example, the Board is considering a new clarity format for auditing standards, which may require each new and existing standard to include a statement of the objective of the standard as it relates to GAAS, and set apart "requirements" from "guidance" by placing requirements in text boxes. In terms of process, the ASB may change the current practice of issuing SASs, which are later codified into AU sections. Instead, each AU section would be revised directly and reissued as such, similar to the process currently used by the IAASB. I would encourage you to start thinking about these issues, as the Auditing Section will have the opportunity to provide input in the near future.
The board has agenda items relating to a number of other topics, including related parties, auditing accounting estimates, and development of other conventions to enhance the clarity of auditing standards, among others. A complete list can be found on the AICPA Web site. |
