Auditing Standards Board Update

Mark H. Taylor
Professor of Accountancy
Weatherhead School of Management
Case Western Reserve University
Cleveland, OH

The Auditing Standards Board (ASB) convened three meetings since the update that was included in the Summer edition of The Auditor's Report. The meetings were held June 21-24 in Atlanta, GA, July 26-29 in Chicago, IL and August 23-26 in Denver, CO. Further, the board has one more meeting schedule for 2010 toward the end of October. This update covers the board's work at all three of these meetings. The breadth of work covered at these summer meetings is significant and has important implications for practice. As has been typical of the meetings of the last couple of years, much of the agenda addressed aspects of the Clarity Project, which will soon be completed. The format of this update is modified from previous updates. The ASB is now preparing, approving and posting meeting highlights on the ASB website. Previous updates drew liberally from these highlights. As meeting highlights are now being posted, I will trim the ASB Updates for The Auditor's Report for detail, and tabulate the proposed SASs deliberated at the meetings, the Task Force Chairs who presented them, and the ASB's actions in regard to the proposed SASs. I may also include discussion on matters related to those standards that are of more than passing importance.

June 2010 Meeting
Table 1 presents, for the June 2010 meeting in Atlanta, the Proposed SASs, Task Force Chairs who presented the Proposed SASs, and outcomes of the deliberations.

*This final clarified SAS will be released when proposed SAS Written Representations is finalized as a clarified SAS in August 2010 in order to reflect the conforming amendment that is presented in Appendix 2 of proposed SAS Written Representations.
**The proposed SAS combines ISA 510 Initial Audit Engagements—Opening Balances and relevant content from AU 315 Communication Between Predecessor and Successor Auditors.

Thus, for the June meeting, two proposed SAS were voted to ballot as final standards, two were voted to ballot as exposure drafts, and the remaining eight were remanded for additional changes to return at the August 2010 meeting, most to consider changes and vote final. You can access the complete meeting highlights on the ASB website.

July 2010 Meeting
Table 2 presents, for the July 2010 meeting in Chicago, the Proposed SASs, Task Force Chairs who presented the Proposed SASs, and outcomes of the deliberations.

Thus, at the August meeting, four of the proposed SAS were voted to ballot as final standards, and seven of the proposed SAS were remanded for additional changes to return at the August or October meetings, many for final vote. The meeting highlights are not yet posted on the ASB website; if you desire further detail, I am informed those highlights will soon be posted.

Some additional comment about proposed SAS, Restricting the Use of an Auditor's Report may be interesting. This additional commentary demonstrates the connection to the realities of contextual variables in practice that the ASB works very hard to be cognizant of, and to develop standards which account for such contextual variables. In the context of restricting the use of the auditor's report, the ASB discussed whether confusion exists between the concept of restricting the use of an auditor's communication and the concept of restricting its distribution.

• The term restricted use" in the extant standard generally refers to the inclusion of language in a communication that informs a reader of the purpose of a communication and the basis for its preparation whenever these are not generally known or understood.
• However, although the extant standards are clear that an auditor cannot control the extent of physical distribution of a communication after its release, the extant standards do contain requirements regarding the language used in these communications, and that language is based on the anticipated extent of distribution of a communication.

Accordingly, the ASB directed the Task Force to consider developing a new term to replace the term restricted use" to clearly communicate that the report or communication has been prepared to satisfy the objectives of a specific set of users (i.e., not general purpose users), that in some cases, the subject matter of the communication may have been prepared using a framework or criteria that is not known to persons other than the intended users; and that in some cases, the scope of the work performed by the auditor for purposes of developing the report or communication may not have been sufficient to provide a basis for an opinion.

The ASB also discussed whether the distinction between restrictions on use and restrictions on distribution should be made clearer in the proposed SAS. Such a clarification would not completely resolve the practice issue as regulatory agencies, in an effort to be transparent, make the reports public record. Thus, restricting the use of a report that will become public record is futile and inconsistent with the intent of the regulatory agency. Thus, restricted use language is meaningless when the reports are available to the general public. The ASB also discussed whether restricted use" should instead be referred to as intended use" or intended purpose." However, restricted use" precludes non-specified parties from placing any reliance on the subject matter. If the ASB determines to move away from restricted use," the report language should include language that precludes reliance on the subject matter, either (1) by making clear that unless the reader understands the subject matter, he or she is precluded from placing reliance on such subject matter or (2) by restricting reliance to only those parties specified in the report. The final outcome of these deliberations will be discussed in a future ASB update.

August 2010 Meeting
Table 3 presents, for the August 2010 meeting in Denver, CO, the Proposed SASs, Task Force Chairs who presented the Proposed SASs, and outcomes of the deliberations.

*At the meeting, the ASB voted unanimously to ballot the SAS for either issuance as a final standard or re-exposure if re-exposure is considered necessary based on some changes made at the meeting. Subsequent to the ASB meeting, the staff, in consultation with the chair of the ASB, reached the conclusion that the proposed SAS does not require re-exposure. See additional comments in ASB Highlights on the ASB website when posted (soon).

** The ASB voted 18-1 to ballot the standard for issuance as a final standard. Andy Mintzer dissented to the issuance of the SAS because he believes that auditing standards should not include requirements or application guidance for engagement quality control reviewers (EQCR) as EQCR are not part of the audit engagement team and requirements and application guidance for EQCR are appropriately included in Statements of Quality Control Standards.

As indicated, at the August meetings, ten Proposed SAS were voted final, and five Proposed SAS were remanded to the respective Task Force for changes to be brought back to a future ASB meeting.

Final Comment