Clarified Auditing Standards 4

Applying Clarified Auditing Standards to Audit Correspondence ON DEMAND Washington Society of CPAs

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 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.

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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.

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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.

• (The standard specifically mentions that laws and regulations may specify the identity of the auditor of a governmental entity, may require a basis of accounting that does not conform to GAAP—such as GASB or FASAB standards—or may require an auditor to issue an opinion).
• Once effective, SAS 130 will supersede the integrated audit guidance in the attestation standards.
• He writes accounting and auditing manuals and is currently an author and presenter of live staff training seminars, live webcasts, and self-study CPE programs, including self-study courses for Western CPE.
• At a minimum, this involvement should include discussions with the component auditor or management of the business activities of the component that are significant to the group, as well as the susceptibility of the component to misstatement.

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But it does suggest requesting one under the standards that provide specific subject matter guidance and when performing an examination or review engagement. Under the new guidance, an accountant is required to request a written assertion from the responsible party — which is usually the company’s management — in all attestation engagements, including agreed-upon procedures engagements. The existing standards state that a practitioner should ordinarily obtain a written assertion from the responsible party in only an examination or review engagement. To assume responsibility for the work of a component auditor, the group auditor is required to (1) specify the type of work to be performed by the component auditor and (2) be involved in the component auditor’s work by performing additional procedures that are described in paragraphs .50–.64 of the standard.

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In our opinion, the schedule of investment returns of ABC Company for the year ended December 31, 2020, is presented in accordance with the ABC criteria set forth in Note 1 in all material respects.

Peer Reviewers must evaluate the firm’s compliance and documentation with 2011 Yellow Book independence requirements related to non-audit services. The information and resources here will help you stay informed regarding audit, attest, and quality control standards and guidance. An entity or business activity for which group or component management prepares financial information required by an applicable financial reporting framework (such as GAAP).

• This decision is most often primarily influenced by factors outside the group auditor’s control.
• The Yellow Book establishes a conceptual framework that auditors use to identify, evaluate, and apply safeguards to address threats to independence.
• Now, the attestation standards apply only to examination, review and agreed-upon procedures engagements.
• 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.
• Contact Armanino’s Audit and Financial Statement Review services experts today to discover efficient solutions that keep your business in regulatory compliance.

Applying Clarified Auditing Standards to Audit Correspondence ON DEMAND

CS Section 100 states that the general professional standards of professional competence, due professional care, planning and supervision, and sufficient relevant data apply to consulting services. Furthermore, in such situations, practitioners are required to follow the AICPA Code of Professional Conduct. The “AU-C” section identifier will be retained indefinitely for clarified auditing standards developed by the AICPA Auditing Standards Board. Let’s look at the 2011 Yellow Book Standards and the new independence requirements regarding non- audit services. The Yellow Book establishes a conceptual framework that auditors use to identify, evaluate, and apply safeguards to address threats to independence. The clarified SAS is effective for filings under the Securities Act of 1933 that include audited financial statements for periods ending on or after Dec. 15, 2012.

Amendment clarifies CPAs’ financial statement preparation engagements

This understanding is the basis for identifying and evaluating the significance of components and for assessing the risks of material misstatements of the group financial statements, whether due to error or fraud, and thereby for developing planned audit procedures to appropriately assess these risks. The new standard also requires that the group engagement partner evaluate whether it is reasonable to believe that sufficient appropriate audit evidence can be obtained regarding the consolidation process and the financial information of the components on which to base the group audit opinion. Making these determinations requires sufficient knowledge of the group, its components, and their environments to make a preliminary assessment of the significance of components and risks related to group-level activities. The AICPA Audit Guide Analytical Procedures, updated as of March 1, 2012, includes relevant guidance contained in applicable standards and other technical sources.

The project arose from questions regarding whether AR-C Section 70 is required to be applied in situations in which controllership or CFO services are performed under the consulting standards and financial statements are created as part of that. Because financial statement preparation is not an attest service, ARSC determined that excluding such engagements would not adversely affect the public interest. The new standard requires accountants to request written representations for all attestation engagements. Current guidance for attestation engagements doesn’t require a representation letter.

Aggregating components that have similar risk profiles may be Clarified Auditing Standards the most appropriate and efficient way to fulfill this requirement. If yes, then be aware of the recent changes from the Auditing Standards Board (ASB). The ASB did the same with the audit standards a few years ago; that change resulted in the AU-C (clarity) designations for audit standards. The current guidance covers compilations of prospective financial information because it was originally issued before the attestation standards were established.

Understanding the Clarified Auditing Standards – 2012 Audit Risk Alert Paperback

Another change is the numbering of the standards, which are currently labeled “AU” for existing standards and “AU-C” for clarified standards, which will change to “AU” after implementation. It will be more efficient to determine whether reference will be made before designing the remainder of the group audit work. This decision is most often primarily influenced by factors outside the group auditor’s control. The group auditor is required to design and implement audit tests that appropriately address identified risks of material misstatements in the group financial statements.