3 Things You Need to Know About Clarified Standards
With only one AU section left to clarify, the Auditing Standard Board’s Clarity Project is substantially complete. During the past year, I have been traveling around the country talking about the 47 “AU-C” sections that have been clarified and converged with corresponding International Standards on Auditing. Here are some of the major points that you need to know about these standards and their impact:
- This is not the year to put off updating your audit methodology or your professional library. Some of the changes to the clarified standards are substantive; most are not, but the changes still require tweaks to your audit programs. (Remember, Peer Review requires you to have access to the latest standards.)
- One of the most substantive changes is to the auditor’s report. AU-C section 700, Forming an Opinion and Reporting on Financial Statements. The auditor’s report now includes headings for each section of the report, and there is new boilerplate language for the management’s responsibilities and the auditor’s responsibilities. Adding headings and boilerplate language to an auditor’s report, while affecting every audit, is not hard to do. What is hard is making sure that it gets done. If a staff person takes last year’s report and changes only the dates, and the firm issues that report without headings and revised wording, then the firm has issued a deficient report. Or as my kids say: FAIL.
- The other most substantive change is in the area of group audits. The key point here is to realize when this section, AU-C 600, Special Considerations--Audits of Group Financial Statements (including the Work of Component Auditors) applies. It applies not only when other auditors perform part of the audit, but whenever the financial statements include financial information of components, such as equity investees, subsidiaries or other business entities and activities that are included in the group financial statements. Check back with AICPA Insights—I’ll post a separate blog on group audits.
There is a wealth of information, including articles, guidance, tools, toolkits and videos available on the AICPA’s Clarity Project website. The Summary of Differences Between Existing and Clarified SASs is particularly useful. You’ll see that a reassuring number of SASs have no substantial change. You’ll also see an in-depth discussion of those SASs that do have changes.
Ahava Goldman, CPA, Senior Technical Manager, American Institute of CPAs. Ahava is the staff liaison for the Auditing Standards Board and staffed the Clarity Task Force which oversaw the ASB’s Clarity project.