The Auditors Report

Auditing Standards Board Update as of January 30, 2009

Mark H. Taylor – Creighton University
Member of the AICPA Auditing Standards Board

This is my first update as a member of the Auditing Standards Board (ASB). As I embarked on my term in December 2008, I became curious about academics’ service on the Board. I acquired an ASB history maintained by the AICPA; it indicates that the following academics have served on the ASB since its inception: Doug Prawitt (2006-2008), Bill Messier (2003-2005), Ray Whittington (1999-2002), Kurt Pany (1995-1998), Al Arens (1992-1994), Gary Holstrum (1989-1991), Jim Loebbecke (1985-1987), Bill Kinney (1982-1984), Philip Fess (1981), Bedford Norton (1979-1980), and John Willingham (1977-1978). I am honored to follow in the footsteps of these dedicated academics and to work with my colleagues from practice who are currently serving on the ASB.

My appointment was effective December 1, 2008. The ASB met for a day and half meeting December 10-11 in Washington DC; we also met for a 3.5 day meeting in San Antonio, TX immediately preceding the Midyear Auditing Section Meeting in Tampa, FL. Having attended those two meetings, I reiterate Doug’s sentiments; I am very impressed by the commitment, integrity, and dedication to the public trust of my colleagues on the Board.

As will be clear from this update, the ASB has an exceptionally ambitious agenda. One of the more significant items in terms of the breadth of its effect on ASB standards is the Clarity Project. Regarding the Clarity Project, I encourage Section members to visit a new link on the AICPA Audit and Attest Standards homepage that contains a wealth of information about the project. To access that page, CLICK HERE.
and click on the blue rectangle labeled “ASB Clarity Project and Convergence with International Auditing Standards.” That link contains:

  • Final clarified Statements on Auditing Standards (SAS) issued to date,
  • An information sheet, “Clarity and Convergence,” briefly explaining the Clarity Project,
  • Exposure drafts issued to date, and related supplementary material,
  • A description of the soon-to-be-released clarified risk assessment standards,
  • A paper, “International Convergence Plan,” describing the ASB’s process for converging its standards with those of the International Auditing and Assurance Standards Board (IAASB), and
  • A December 2007 discussion paper entitled “Improving the Clarity of ASB Standards,” requesting feedback from readers on the Clarity Project.

The ASB currently has, and will continue to have, a significant number of proposed pronouncements in the comment period. I urge Section members to participate in the standard setting process by studying important proposed pronouncements and providing comments either to the ASB or by contacting a member of the Auditing Section Auditing Standards Committee. Incidentally, I was pleased to hear that the ASB had received a comment letter addressing one of the proposed standards from a professor and his auditing students. No doubt this exercise was an excellent learning experience for the students and the contents of that letter were considered along with the other letters received. I encourage Section members to consider coordinating the preparation of such a letter as an audit class project.

As to the overall ASB, I encourage members to CLICK HERE for an ASB member overview; several new members joined the ASB in December to replace others whose terms had concluded.

The ASB performs its work through task forces composed of members of the ASB and others with technical expertise in the subject matter of the projects. Each task force includes an AICPA staff liaison as well. The work product of these task forces is periodically presented at the ASB meetings, which are open to the public. In this ASB update, to provide a broad overview of the extensive ASB activities, I provide a list and summary of the numerous ASB task forces and their objectives. By the sheer volume of task forces (27 in all!), Section members will see that the ASB’s agenda clearly is ambitious, as noted above. In alphabetical order, the ASB’s task forces and the status of their work are as follows:

1. Analytical Procedures Task Force.This task force is revising AU Section 329, Analytical Procedures to converge with International Standard on Auditing (ISA) 520 (Redrafted), Analytical Procedures, which was finalized in September 2008. The task force expects to present a draft of the proposed Statement on Auditing Standards (SAS) at the June 2009 ASB meeting.

2. Auditing Accounting Estimates Task Force.This task force is combining (1) AU Section 342, Auditing Accounting Estimates, and (2) AU Section 328, Auditing Fair Value Measurements and Disclosures, and converging the combined standard with ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, issued by the IAASB in February 2008. The task force discussed its draft during the January 2009 ASB meeting and is expected to return with a revised draft at the April meeting.

3. Auditing Related Party Transactions Task Force. This task force is converging AU Section 334, Related Parties with ISA 550 (Revised and Redrafted), Related Parties. The task force is scheduled to present a draft of a proposed SAS at the July 2009 ASB meeting.

4. Audit Issues Task Force.This task force (1) oversees the ASB’s planning process, (2) evaluates emerging technical issues and determines their appropriate disposition, including referral to an ASB task force to develop guidance, (3) addresses emerging audit and attestation practice issues, (4) provides advice on ASB task force objectives and membership, (5) monitors task force progress, and (6) assists the ASB Chair and the staff in carrying out their objectives.

5. Auditors’ Reports–700 Task Force.This task force is developing the following three proposed SASs to replace AU Section 508, Reports on Audited Financial Statements:

  • A SAS that combines the substance of ISA 700, Forming an Opinion and Reporting on Financial Statements, and ISA 710, Comparative Information – Corresponding Figures and Comparative Financial Statements.
  • A SAS that converges with ISA 705, Modifications to the Opinion in the Independent Auditor’s Report.
  • A SAS that converges with ISA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

The first two will be further discussed at the April 2009 ASB meeting and the third will be discussed at the June 2009 ASB meeting.

6. Auditor’s Reports– 800 Task Force. This task force is developing two proposed SASs to converge relevant aspects of AU Section 623, Special Reports, with

  • ISA 800 (Revised & Redrafted), Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and
  • ISA 805 (Revised and Redrafted), Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement.
    The IAASB issued ISA 800 and ISA 805 in September 2008. In January 2009, the ASB reviewed and discussed the proposed SAS that converges AU Section 623 with ISA 800. The ASB will probably discuss this via conference call before the April meeting to vote it to exposure.

7. Auditor’s Report Research Task Force. This task force, which I will Chair going forward, is charged with identifying research topics and individuals to perform research related to the auditor’s report and how the auditor’s report might be improved. The ASB approved the funding of four projects in the first phase, which involves identifying common misconceptions users have regarding an unqualified auditor’s report. A second phase of the research will explore ways in which the auditor’s report might be revised to address user misconceptions. The first phase of the research is expected to be completed in the first half of 2009.

8. Clarity Task Force.This task force has developed an exposure draft, issued in September 2008, which contains the following two components that Doug mentioned in the Fall update:

  • Proposed Preface to Codification of Statements on Auditing Standards, Principles Governing an Audit Conducted in Accordance with Generally Accepted Auditing Standards. This component proposes replacing AU Section 150, Generally Accepted Auditing Standards, with governing principles. The principles will preface the AU sections, be supported by objectives and requirements of the individual SASs, and categorized as responsibilities, performance, and reporting principles.
  • Proposed Statement on Auditing Standards, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards. The proposed SAS will supersede (1) AU Sections 110, “Responsibilities and Functions of the Independent Auditor;” 210, “Training and Proficiency of the Independent Auditor; 220, “Independence;” and 230, “Due Professional Care in the Performance of Work,” of SAS No. 1, Codification of Auditing Standards and Procedures (2) SAS No. 95, Generally Accepted Auditing Standards, and (3) SAS No. 102, Defining Professional Responsibilities in Statements on Auditing Standards. It will converge these AU sections and standards with ISA 200 (Revised and Redrafted), Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing. The comment period for the exposure draft ended on December 30, 2008.

9. Compliance Auditing Task Force. The ASB issued in December 2008 an exposure draft, Compliance Audits, that will supersede extant AU Section 801, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance. The exposure draft responds to a recommendation in the June 2007 President’s Council on Integrity and Efficiency “Report on National Single Audit Sampling Project,” that the AICPA revise AU Section 801. The report contains the findings of a federal study of the quality of audits performed under OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.

10. Confirmations Task Force. This task force is converging AU Section 330, The Confirmation Process with ISA 505, External Confirmations. The ASB discussed a draft of the proposed SAS at its December 2008 meeting. The task force expects to present a revised draft and to ask the ASB to vote to issue the draft as an exposure draft at the April 2009 ASB meeting.

11. Financial Statements Prepared for Use Outside the U.S. Task Force. This task force is redrafting AU Section 534, Financial Statements Prepared for Use in Other Countries, in accordance with the clarity drafting conventions. Unlike most other auditing standards being converged to an existing ISA, AU Section 534 has no corresponding ISA. The proposed standard will address engagements in which the auditor is reporting on a U.S. entity’s financial statements that have been prepared in conformity with the financial reporting framework adopted in another country for use outside the U.S. The task force is expected to discuss a revised draft at the April 2009 meetings.

12. Fraud Task Force. This task force is converging AU Section 316, Consideration of Fraud in a Financial Statement Audit, with ISA 240 (Redrafted), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. The ASB voted to ballot the proposed SAS for exposure at its December 2008 meeting.

13. Going Concern Task Force. This task force is revising AU Section 341, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, based on the IAASB’s February 2007 exposure draft of ISA 570, Going Concern. The auditing guidance in ISA 570 is predicated on International Accounting Standard 1, Presentation of Financial Statements, which requires management to assess an entity’s ability to continue as a going concern. Currently, a parallel accounting requirement does not exist in U.S. GAAP as the auditor is responsible for assessing whether an entity is a going concern. The task force is scheduled to present a revised draft, reflecting the FASB’s going concern accounting standard, at the July 2009 ASB meeting.

14. Group Audits Task Force. This task force is charged with converging AU Section 543, Part of the Audit Performed by Other Independent Auditors with ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors). The ASB concluded that the revised standard should continue to permit the auditor to make reference in the auditor’s report to work performed by another auditor. The task force discussed its latest draft with the ASB at the January 2009 meeting and will return to the April meeting with revisions.

15. Initial Audit Engagements Task Force.This task force has developed a proposed SAS combining the guidance in ISA 510 (Redrafted), Initial Audit Engagements—Opening Balances, and relevant guidance from AU Section 315, Communications Between Predecessor and Successor Auditors. The ASB voted to ballot the proposed SAS for exposure at its December 2008 meeting,.

16. Interim Reviews Task Force. At its December 2008 meeting, the ASB approved for final issuance the proposed SAS, Interim Financial Information, which amends AU Section 722 to accommodate reviews of nonissuer interim financial information. The proposed SAS indicates that if certain conditions are met, a review of nonissuer interim financial information should be performed in accordance with AU Section 722 rather than Statements on Standards for Accounting and Review Services (SSARSs). The proposed SAS also removes from AU Section 722 the guidance for reviews of issuer interim financial information as that guidance appropriately resides in the PCAOB standards.

17. Internal Audit Task Force. This task force is converging AU Section 322, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements with ISA 610 (Redrafted), Using the Work of Internal Auditors, finalized in June 2008. The task force expects to present a proposed SAS at the July 2009 ASB meeting.

18. Internal Control Task Force. In October 2008 the ASB issued SSAE No. 15, Reporting on an Entity’s Internal Control Over Financial Reporting, and SAS No. 115, Communicating Internal Control Related Matters Identified in an Audit. SSAE No 15 is effective for integrated audits for periods ending on or after December 15, 2008 and supersedes AT Section 501, Reporting on an Entity’s Internal Control Over Financial Reporting (ICFR). It converges the standards practitioners use to report on a nonissuer’s ICFR with PCAOB No. 5, An Audit of Internal Control That is Integrated with an Audit of Financial Statements, which is applicable to issuers. SAS No. 115 supersedes SAS No. 112 and bears the same title as SAS No. 112.

19. International Auditing Standards Task Force. The objective of this task force is to support the development of international auditing standards. Task force activities include, but are not limited to providing technical advice/support to the IAASB AICPA representative and technical advisors, commenting on IAASB exposure drafts, participating in and identifying U.S. volunteer participants for IAASB standard-setting projects, identifying opportunities for establishing joint standards with other standard setters, and identifying international issues that affect auditing and attestation standards and practices. The task force’s next meeting is on March 4-5, 2009.

20. Laws and Regulations Task Force. At its October 2008 meeting, the ASB voted to ballot proposed SAS, Consideration of Laws and Regulations in a Financial Statement Audit, for issuance as an exposure draft. The proposed SAS will supersede AU Section 317, Illegal Acts by Clients, and is based on newly issued ISA 250 (Redrafted), Consideration of Laws and Regulations in an Audit of Financial Statements.

21. Management Representations Task Force. This task force is converging AU Section 333, Management Representations, with ISA 580 (Redrafted), Written Representations. The task force is also converging portions of AU Section 311, Planning and Supervision, with ISA 210, (Redrafted), Agreeing the Terms of Audit Engagements. The task force discussed a draft at the January 2009 meeting and it will likely be voted to exposure via conference call in March.

22. Quality Control Standards Task Force. This task force is converging AU Section 1, The Relationship of Generally Accepted Auditing Standards to Quality Control Standards, with ISA 220, Quality Control for Audits of Historical Financial Information. The task force also is redrafting Statement on Quality Control Standards (SQCS) No. 7, A Firm’s System of Quality Control, as part of the Clarity Project.

23. Required Supplementary Information/Other Supplementary Information Task Force. At its December 2008 meeting, the ASB voted to ballot to expose for public comment the following proposed SASs: (1) Required Supplementary Information; (2) Other Information in Documents Containing Audited Financial Statements; and (3) Other Information in Relation to the Financial Statements as a Whole. The proposed SASs will replace the guidance in AU Section 550, Other Information in Documents Containing Audited Financial Statements, AU Section 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents, and AU Section 558, Required Supplementary Information.

24. Risk Assessments Task Force. This task force is revising the risk assessment suite of standards in connection with the Clarity Project. The ASB voted to expose for comment at its December 2008 meeting the following proposed redrafted SASs, plus on additional related proposed SAS, all expected to be released by January 30, 2009 with comment period ending on April 30, 2009:

  • Proposed SAS 106 (Redrafted), Audit Evidence,
  • Proposed SAS 107 (Redrafted), Materiality in Planning and Performing an Audit,
  • Proposed SAS 108 (Redrafted), Planning an Audit,
  • Proposed SAS 109 (Redrafted), Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement,
  • Proposed SAS 110 (Redrafted), Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained,
  • Proposed SAS, Evaluation of Misstatements Identified During the Audit.

25. Service Organizations Task Force. In November 2008 the ASB exposed a proposed SAS, Audit Considerations Relating to an Entity Using a Service Organization, and a proposed SSAE, Reporting on Controls at a Service Organization. The two standards will replace AU Section 324, Service Organizations, which currently provides guidance to auditors of the financial statements of entities that use service organizations (user auditors) as well as auditors reporting on controls at service organizations (service auditors). The exposure drafts present the guidance for user auditors in a SAS and the guidance for service auditors in an SSAE, as do the IAASB’s December 2007 exposure drafts of ISA 402, Audit Considerations Relating to an Entity Using a Third Party Service Organization, and International Standard on Assurance Engagements 3402, Assurance Reports on Controls at a Third-Party Service Organization. The comment period for the proposed SAS ends February 17, 2009. Comment letters, along with a revised draft will be discussed at the June 2009 ASB meeting with the goal that the final ASB vote is scheduled for the July 2009 meeting. The IAASB and ASB service organizations task forces will conduct a joint meeting in March 2009 to discuss issues related to the SSAE and ISAE.

26. Subsequent Events. This task force is developing a proposed SAS, Subsequent Events, that combines the requirements and guidance in ISA 560 (Redrafted), Subsequent Events, and the relevant content from

  • AU Section 508, Reports on Audited Financial Statements,
  • AU Section 530, Dating of the Independent Auditor’s Report,
  • AU Section 560, Subsequent Events, and
  • AU Section 561, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report.

The IAASB issued ISA 560 (Redrafted) in April 2008. At the October 2008 ASB meeting, the task force presented a proposed draft of the standard and related issues. The ASB will have a conference call prior to the April 2009 meeting to vote to expose the draft.

27. Using the Work of a Specialist Task Force. This task force is revising AU Section 336, Using the Work of a Specialist, and replacing it with two proposed SASs. One will converge with ISA 620 (Revised and Redrafted), Using the Work of an Auditor’s Expert, issued in August 2008 and addresses situations in which the auditor engages an expert. The other will focus on situations in which an auditor uses as audit evidence the work product of a nonemployee specialist engaged by management, and will expand on the IAASB’s amendment to ISA 500 (Redrafted), Audit Evidence.

That the ASB’s agenda is indeed very ambitious should now be evident. Consider the resources that are being committed to assist the ASB in conducting its mission; they are substantial. The members of the ASB, as well as the many staff that assist the board, are all committed to improving AICPA Auditing Standards for the benefit of the public trust. As I have embarked on a term at the ASB, I am amazed by both the volume of work that is progressing and by my dedicated colleagues on the board as well as many support staff who are moving things forward. I encourage again Section members to participate in the ASB’s work. If you have questions or comments about the ASB’s work, please contact me at mhtaylor@creighton.edu.

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