The Auditors Report

ASB Update as of May 2007

Douglas F. Prawitt, Brigham Young University; Academic Member of the AICPA Auditing Standards Board

While the ASB has a number of important technical projects underway, this update focuses on three initiatives of particular relevance to the Auditing Section: the joint ASB/IAASB/AAA research initiative and the ASB harmonization and clarity initiatives. Information regarding the status of the various technical projects underway is available at the AICPA's Web site.

ASB/IAASB/AAA Auditors' Report Research Initiative
As indicated in previous columns, the ASB and IAASB had initially planned to fund as many as two research projects designed to gain a better understanding of users' perceptions of the unqualified auditor's report and explore ways in which the report might be revised to communicate the auditor's opinion more clearly. However, the ASB and IAASB were very pleased with the quality of the eleven proposals submitted in response to the RFP last fall, and four proposals made our "finalist list." At that point the Boards decided to fund as many of those top four projects as possible. The process of procuring additional funding took longer than expected, partially due to questions related to the research sponsorship role of the newly created AICPA Center for Audit Quality. However, it appears that we have cleared the unexpected hurdles, and the process to obtain the Boards' final approval has moved forward. This process has nearly been finalized, and I anticipate that the four finalist research teams will be notified of the decision shortly after this update is published. The ASB and IAASB continue to be committed to and excited about this project and the insights that will come from it. Be sure to watch for announcements by the Auditing Section on this matter in the near future.

ASB Harmonization and Clarity Initiatives
The mission of the ASB is to develop and communicate comprehensive performance, reporting, and quality control standards, as well as practice guidance to enable auditors of non-issuers to provide high quality, objective audit and attestation services at a reasonable cost in the best interests of the profession and the beneficiaries of those services, with the ultimate purpose of serving the public interest. In 2004, the ASB considered how to best meet its mission in light of the creation of the Public Company Accounting Oversight Board (PCAOB) and the increasingly widespread acceptance of the International Standards on Auditing (ISAs) issued by the IAASB. The ASB took the first step by developing a plan to harmonize U.S. generally accepted auditing standards (GAAS) with the international standards while also avoiding the creation of unnecessary differences between GAAS and PCAOB standards.

The ASB's plan to harmonize GAAS with the ISAs includes harmonizing its standard-setting agenda with that of the IAASB and using the ISAs as a base for developing new standards or revising existing standards. The ISA base is adapted only when modifications are necessary to better serve the needs of U.S. users of audited financial statements of non-issuers, or when modifications are appropriate for U.S. legal and regulatory reasons.

What has the ASB done so far?
Since formalizing its plans to harmonize GAAS with the ISAs, the ASB has issued several standards that are either based on the ISAs or were developed jointly with the IAASB. The most notable standards are the risk assessment suite of standards (Statements on Auditing Standards (SAS) Nos. 104 -111). The risk assessment standards are the culmination of a cooperative effort between the IAASB and the ASB that started long before the ASB's formal plans to harmonize GAAS with the ISAs. Since 2004, using the ISAs as a base, the ASB also issued SAS No. 103, Audit Documentation, (AU sec. 339) and SAS No. 114, The Auditor's Communication with Those Charged with Governance, (AU sec. 380).

Interaction between the ASB and the IAASB is increasing, and several additional projects that use the ISAs as a foundation are underway. These projects include revision of the auditor's report to more clearly explain the auditor's and management's responsibilities, revision of the related parties standard to apply a risk-based approach, and revision of the use of specialists and management representations standards.

What's Next?
The IAASB is currently involved in a significant effort to clarify the ISAs. The purpose of that effort is to address concerns about the clarity of the ISAs as well as their length and complexity. The ASB has been monitoring the progress of the IAASB and has concluded that by following a similar path and issuing standards in a different format and style from those traditionally followed, the ASB could more effectively achieve its mission. The ASB believes that applying new "clarity" conventions to new and existing standards will make them more understandable and capable of more consistent application. The Board will soon decide how best to meet its objective of harmonizing GAAS with the ISAs in the context of the clarity project. In doing so, the ASB is seeking input with respect to certain issues related to the structure, format, and style of the standards.

Discussion Paper on Clarity of Standards. The ASB recently issued a discussion paper titled "Improving the Clarity of ASB Standards." The Board seeks feedback on the following issues, which are laid out in the discussion paper:

  • Establishing objectives for each of the standards that provide a conceptual framework for the application of professional judgment, and the obligation related to the objective.
  • Making structural and drafting improvements to make the standards easier to read and understand.
  • Including special considerations in the audits of public sector entities and small entities in the explanatory material of a statement on auditing standards.
  • Establishing a glossary of terms that would be presented in a separate section of the Codification of Statements on Auditing Standards.

The discussion paper is available for download from http://www.aicpa.org/download/auditstd/Clarity_of_ASB_Standards_Discussion_Memo.pdf. The ASB asks readers to study the proposed new style and the format of the standards and comment on their preferences. The comment period on the proposals ends on June 15, 2007. I strongly urge members of the Auditing Section to take an active interest in reading and commenting on this discussion paper as well as the harmonization and clarity initiatives in general.

Note: Some of the above content was adapted with permission from "ASB's Road to Harmonization," an article by Sharon Walker published in the Winter 2007 issue of In Our Opinion, the newsletter of the AICPA audit and attest standards team.

Back to Contents Page