IAASB Completes Clarity Project; New Web Page Features Full Suite of Standards and Resources
The group auditor should also review the component auditor’s documentation of identified significant risks. In certain cases, the group auditor may choose to become more involved in the work of the component auditor or may itself perform additional procedures on the component financial information. This AICPA Audit Guide has been fully conformed to reflect the new standards resulting from the Clarity Project. Additionally, this approach gives auditors the opportunity to review and understand the changes made by their third-party audit methodology and resource providers, if applicable. The clarified auditing standards are effective for audits of financial statements for periods ending on or after December 15, 2012 (calendar year 2012 audits).
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.
AICPA Statement on Auditing Standards No. 123
- The impact of the new standard will depend on the approach the practitioner has taken in performing past group audits.
- However, the standard also indicates (paragraphs .A1–.A5) that discretion may be exercised in aggregating components and in the manner in which components are identified.
- 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.
Sign up to stay up-to-date with the latest accounting Clarified Auditing Standards 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.
Course Specifics
In this article, the term “group auditor” refers both to the “group audit team” and the “group engagement partner,” even though the standard further differentiates responsibilities by referring to these parties separately. It is important to note that the same personnel may, and often do, function as both members of the group engagement team and a component audit team. Impact of new standard on individual engagements will depend on the manner in which the practitioner has performed group audits in the past.
AICPA Professional Standards
Established for the clarified auditing standards to avoid confusion with references to the “AU” sections in AICPA 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.
New Clarity Standards &Yellow Book Requirements
A component that is identified by the group auditor as being significant either because (1) it is individually of financial significance to the group or (2) it is likely to include significant risks of material misstatement of the group financial statements because of its specific nature or circumstances. 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. In some cases, this assessment may indicate, because of lack of independence or competence, that the group auditor should not use the component auditor’s work for any purpose. 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. He’s a managing member of CPA Firm Support Services, LLC, an organization that provides resources, training, and consulting to smaller CPA firms. Larry focuses on practical ways to perform effective and efficient accounting and auditing engagements.
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.
Applying Clarified Auditing Standards to Audit Correspondence ON DEMAND
An auditor performing work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be a part of the group audit engagement team’s firm in a different location, a network firm, or another firm. – An important factor in determining the effort required to perform an effective group audit is the number of components included in the group. 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. However, the standard also indicates (paragraphs .A1–.A5) that discretion may be exercised in aggregating components and in the manner in which components are identified.
- The group engagement team also has the responsibility to perform procedures designed to identify and evaluate subsequent events that occur between the date of the group financial statements and the date of the group audit report that may require adjustment or disclosure (see AU-C 560.05, 560.09, and 560.10).
- 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.
- The AICPA Audit Guide Analytical Procedures, updated as of March 1, 2012, includes relevant guidance contained in applicable standards and other technical sources.
- The new standard requires accountants to request written representations for all attestation engagements.
- Communicating internal controls matters identified in an audit – Au-C Section 265.
- The information and resources here will help you stay informed regarding audit, attest, and quality control standards and guidance.
The guide summarizes applicable requirements and practices, and delivers “how-to” advice for handling analytical procedures used in audits. The included case study illustrates the use of analytical procedures in planning and substantive testing, utilizing trend analysis, ratio analysis, reasonableness testing, and regression analysis. The appendices include a variety of examples of financial ratios and a comparison of the key provisions of the Risk Assessment Standards.
How to Audit for Fraud
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.
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.
It will amend SSARS No. 21, Clarification and Recodification, as amended, AR-C Section 70. Financial statements that include financial information of more than one component. You must log in to view this content and have a subscription package that includes this content. As part of the ASB Clarity Project, when an exposure draft of a clarified auditing standard is issued, it is made available on the “Improving the Clarity of ASB Standards” page on the AICPA’s website. When a clarified auditing standard is finalized, it is made available on the “Final Clarified Statements on Auditing Standards” page on the AICPA’s website.