Clarified Auditing Standards 2

Audit, Attest & Quality Control Standards Resources

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.

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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).

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.

Aggregating components that have similar risk profiles may be 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.

• Accordingly, the AICPA issued an exposure draft in December 2015 that would establish separate standards for compilations of prospective financial information.
• The group engagement team’s assessment of these factors provides a basis for determining whether to take responsibility for the work of the component auditor and, when taking responsibility, the nature and extent of involvement in component audit work.
• 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.
• 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.

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.

– 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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The group auditor should determine materiality for the group financial statements as well as for each component that is to be audited or reviewed, taking into account all of the components of the group where the group auditor is assuming responsibility for the work of a component auditor. The group engagement team should also evaluate the appropriateness of performance materiality at the component level, as determined by the component auditor. In an increasingly digital profession, data security has become one of the most critical challenges facing finance and accounting professionals today. Stay up to date with practical guidance to help you mitigate these risks and strengthen your security posture. The SSAE No. 18 project is part of the AICPA’s broad-ranging initiative to reformat much of its existing guidance.

Included in

• – 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.
• The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) recently issued its attestation guidance in a new, clarified format.
• It is also going to require team captain judgment on firms that have partial or marginal documentation of the above items.
• The new standard places much emphasis on the requirement to assess risk and develop appropriate audit responses to those risks for each component of the group.
• This new term is similar to “tolerable misstatement,” which is no longer referred to in the new auditing standards.

The most significant is a requirement to apply risk-assessment procedures in an attestation examination. The risk assessment includes an understanding of internal control over the subject matter and an assessment of risks of material misstatement of the subject matter. The documentation and performance standards of the new Yellow Book independence requirements regarding non-audit services is going to require additional time for peer reviewers to evaluate the firm’s compliance with these standards. These new standards might cause a firm that ordinarily would receive a pass report to either receive a pass with deficiency or fail report. It is also going to require team captain judgment on firms that have partial or marginal documentation of the above items. The AICPA Peer Review Program has developed practice aids and has enhanced the checklists to assist peer reviewers with this new standard.

Larry Perry, AICPA In-House Training

Established for the clarified auditing standards to avoid confusion with references to the “AU” sections in AICPA Clarified Auditing Standards Professional Standards, the AU-C identifier had been scheduled to revert to the AU identifier at the end of 2013, by which time the previous AU sections would be superseded for all engagements. The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) recently issued its attestation guidance in a new, clarified format. Here are more details on the new regulatory updates for attestation engagements, including examinations, reviews and agreed-upon procedures. The group auditor’s responsibilities, including the extent of involvement in the work of component auditors, are more clearly articulated in the new standard.

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.

Examination Report on Subject Matter; Unmodified Opinion

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.

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.

Sign up to stay up-to-date with the latest accounting regulations, best practices, industry news and technology insights to run your business. The guidance in SSAE No. 18 is effective for practitioners’ reports dated on or after May 1, 2017. CPAs who participate in group audits will want to become familiar with changes in terminology described in the new standard. This site is brought to you by the Association of International Certified Professional Accountants, the global voice of the accounting and finance profession, founded by the American Institute of CPAs and The Chartered Institute of Management Accountants. Based on our review, we are not aware of any material modifications that should be made to the accompanying schedule of investment returns of ABC Company for the year ended December 31, 2020, in order for it to be in accordance with XYZ criteria set forth in Note 1.