Applying Clarified Auditing Standards to Audit Correspondence ON DEMAND Washington Society of CPAs
Some of these risks are related to the activities involved in managing the group and in consolidating or combining the financial information of its components. The new standard requires the group auditor to specifically address the design and operation of groupwide controls, including those related to the consolidation process. 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). 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. 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.
AICPA Professional Standards
- As a result, the group auditor actually has a wider range of choice in terms of scope of work to be performed on each component than might be implied from a quick reading of this requirement.
- 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.
- 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.
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AU-C 600 contains provisions that are consistent with the risk-based requirements of current U.S. standards. AU-C 600’s guidance also is consistent with the international standard, ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), with the exception of a group auditor’s ability to reference the work of a component auditor. Many of the effects of applying the new group audit standard will be a result of the format, terminology, and requirements of the clarified standards as a whole and, therefore, do not directly result from the group audit standard itself. 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. The auditor’s consideration of these criteria may require additional documentation.
North Carolina CPA PAC
As a result, the group auditor actually has a wider range of choice in terms of Clarified Auditing Standards scope of work to be performed on each component than might be implied from a quick reading of this requirement. The type of work to be performed on the financial information of a component is, generally stated, a result of the assessed risk that the component may generate a material misstatement in the group’s financial statements. The group auditor is responsible for the direction, supervision, and performance of the group audit as well as for the appropriateness of the group audit report. The group auditor’s overall requirements are outlined in paragraphs .13 through .49 of the new standard. Communicating internal controls matters identified in an audit – Au-C Section 265.
AICPA Statement on Auditing Standards No. 123
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.
A&A Focus recap: M&A trends, non-GAAP frameworks, and how quality management and peer review intersect
- Some of these risks are related to the activities involved in managing the group and in consolidating or combining the financial information of its components.
- 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.
- So, the new attestation standard adopts several requirements previously found only in GAAS.
- One of the new terms is “performance materiality,” which is an amount set by the auditor that is less than materiality for the financial statements as a whole in order to reduce to an appropriately low level the probability that any undetected misstatements would not exceed financial statement materiality.
- The group auditor is responsible for the direction, supervision, and performance of the group audit as well as for the appropriateness of the group audit report.
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.
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.
– 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.
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.
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 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).