AICPA Issues Clarified Attestation Standard
The Auditing Standards Board (ASB) has redrafted almost all of the auditing standards in an attempt to make them easier to read, understand, and apply. This is referred to as the Clarity Project, which began back in 2004 and is the first complete redrafting and recodification of U.S. Although the main focus of the project was to present standards that are less confusing, auditors may need to make some adjustments to their current audit approach. As a result of the Clarity project, audit clients will see some changes to the engagement letter and audit report language for 2012 audits.
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The new standard contains explicit requirements for the group auditor that are intended to address these risks, in particular, risks related to the consolidation process and risks related to identifying subsequent events. AICPA Audit Guides Clarified Auditing Standards are developed and updated to provide guidance and tools for practitioners as they perform audit engagements. Evolving accounting standards can pose a challenge for business leaders as they adapt systems and process to meet the new rules. Contact Armanino’s Audit and Financial Statement Review services experts today to discover efficient solutions that keep your business in regulatory compliance. All the components for which financial information is included in the group financial statements.
- For example, the clarity standards provide additional guidance on criteria to be considered in the application of requirements that are not explicitly specified in current GAAS.
- A final standard is expected to be issued later this year and go into effect for reports dated on or after May 1, 2017.
- AU-C 600 contains provisions that are consistent with the risk-based requirements of current U.S. standards.
- He is currently developing audit guides and practice aids for use on very small audits that comply with the risk assessment standards and, at the same time, create efficiencies by reducing the volume of forms, checklists and working papers.
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Clearer requirements and guidance for group auditors are contained in a new standard developed as part of the AICPA Auditing Standards Board’s Clarity Project. The standard, AU-C 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), particularly adds clarity for situations in which part of the work is performed by auditors other than the auditor who expresses the opinion on the financial statements of the group. For components that are not significant, the group engagement team should perform analytical procedures at the group level. At the same time the ASB was working toward further clarity in the auditing standards, it was also working to converge the current U.S. standards with the International Standards on Auditing (ISAs), which are issued by the International Auditing and Assurance Standards Board (IAASB). The Public Company Accounting Oversight Board (PCAOB), a private-sector, non-profit corporation, created by the Sarbanes-Oxley Act, to oversee the auditors of public companies, has remained silent on the clarity project thus far.
- When a component auditor performs procedures related to a significant component, the group engagement team should be involved in assessing the component’s impact on risks of material misstatement of the group financial statements.
- The group auditor should also review the component auditor’s documentation of identified significant risks.
- Stay up to date with practical guidance to help you mitigate these risks and strengthen your security posture.
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– The new standard requires that, when performing component audit work, members of the group engagement team, as well as other personnel within the same audit firm or from other firms that are members of the same network, be addressed separately as component auditors. This represents a change from prior practice and will require the group auditor to demonstrate that it has appropriately assessed the roles of all auditors involved. In most cases, audit networks provide robust quality control and communications environments that can be relied on to accomplish this requirement. The standard permits reference to the report of a component auditor when the component’s financial statements are prepared using a different financial reporting framework than that of the group financial statements, as long as the group auditor audits the component’s conversion adjustments.
Understanding the Clarified Auditing Standards – 2012 Audit Risk Alert Paperback
Accordingly, the AICPA issued an exposure draft in December 2015 that would establish separate standards for compilations of prospective financial information. A final standard is expected to be issued later this year and go into effect for reports dated on or after May 1, 2017. The impact of the new standard will depend on the approach the practitioner has taken in performing past group audits. The requirements generally are consistent with current best practices, but some specific requirements could create unnecessary work if the auditor does not understand the new standard or apply sound judgment. In general, whenever an auditor concludes that sufficient evidence cannot be obtained to support a group audit opinion or that it is unable to serve as group auditor, it should either not accept the engagement or withdraw. In cases in which laws or regulations require that the auditor perform an audit and issue an opinion regardless of the circumstances, the auditor should do so but should disclaim an opinion.
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In the clarified format, each section of the attestation guidance includes an objective, definitions of key terms, the section’s requirements for accountants, application guidance and explanatory material. The clarified rules also are expected to converge with the guidance issued by the International Auditing and Assurance Standards Board. The ASB moved the content of AT Section 501, An Examination of an Entity’s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements, from the attestation guidance to the auditing standards.
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Auditors should continue to use the previous edition of this guide (2008 edition) until the clarified auditing standards become effective for the auditors’ engagements. The new standard illustrates how the group engagement team could refer to component auditors’ work in the group audit report (.A94, Exhibit A, Illustration 2). If the group auditor, in its discretion, decides to name specific component auditors in the group audit report, the component auditor’s report (with the component auditor’s permission) is required to be presented together with the group auditor’s report on the group financial statements. The ASB generally equates an examination under the attestation standards with an audit under U.S. So, the new attestation standard adopts several requirements previously found only in GAAS.
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For components identified as significant because they are individually financially significant to the group, the group engagement team, or a component auditor on its behalf, should perform an audit of the component’s financial information, adapted as necessary to meet the group engagement team’s needs. With 40 years’ experience as a CPA, Larry is a nationally-known author of accounting and auditing manuals, a professional continuing education instructor and author, and a consultant to CPA firms. Larry practices in Colorado Springs, Colorado and has served primarily small business, religious and small non-profit organizations and other nonprofit organizations.Larry is co-founder of CPA Firm Support Services, LLC, an organization dedicated to meeting the needs of small to medium-size CPA firms. He is currently developing audit guides and practice aids for use on very small audits that comply with the risk assessment standards and, at the same time, create efficiencies by reducing the volume of forms, checklists and working papers.
The standard does not, however, permit reference unless the component auditor has performed an audit in accordance with GAAS in the United States and has issued an unrestricted auditor’s report on those financial statements. The provisions of the new standard, AU-C 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), are consistent with the risk-based requirements of current U.S. standards. AU-C 600’s provisions also are consistent, with the exception of a group auditor’s ability to reference the work of a component auditor, with the international standard (ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)). The new standard changes terminology (see the sidebar, “Group Audit Terminology,” below) and more clearly articulates the group auditor’s responsibilities, including the extent of involvement in the work of component auditors. However, if the peer reviewer determined that the non-conforming audit report wording was isolated, and not pervasive across the firm’s audit engagements, then a pass report would be issued.
This change happened when the AIPCA published Statement on Auditing Standards No. 130, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements, and it’s effective for engagements with periods ending on or after December 15, 2016. Once effective, SAS 130 will supersede the integrated audit guidance in the attestation standards. Moreover, the guidance for compilation services has been removed from the attestation standards. Now, the attestation standards apply only to examination, review and agreed-upon procedures engagements.