SAS No. 109, Understanding the Entity, Its Environment and Assessing the Risks of Material Misstatement, states:

In SAS No. 107, audit risk at the account balance or transaction class level has three components.

The subjective level of risk at the financial statement level, best described as high or low, can significantly affect the audit strategy, including the nature, extent and timing of procedures, and the staffing and supervision of the engagement.

SAS No. 107 defines audit risk as the risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated. Audit risk is subjective in nature and represents the likelihood misstatement will remain in the financial statements after we complete our auditing procedures. SAS No. 107 discusses risk at both the financial statement level and the assertion level. Engagement risk, or overall engagement risk as some call it, is audit risk at the financial statement level and is primarily affected by certain factors:

As I've discussed in my previous posts, anyone who's asking whether the United States should stick with current U.S. Generally Accepted Accounting Principles (GAAP) or switch to current International Financial Reporting Standards (IFRS) is asking the wrong question. That's because we have more and better options to choose from in determining the future of financial reporting in the United States. In this post, I'll describe another alternative for us to consider—a realistic, practical approach that has a better chance of maximizing the economic welfare of both the United States and the rest of the world.

I’m pretty much a creature of habit. My thinking, like most accountants, is “If it ain’t broke, don’t fix it!” Change isn’t easy for any of us, particularly when it appears to cost money!

In my training seminars and webcasts we talk a lot about change. I always encourage participants to identify opportunities to change their approaches to audits to get the work done faster, even on small audits. Effective planning on every job is the way to do this.

Increasing profits on small audits requires breaking free of some of the things we’ve been taught that are not true. Here is one of those myths:

Professional standards are increasingly complex and the small practitioner can’t keep up with all the changes. To make sure we comply with all the standards, we have to use all the practice aids in major publishers’ audit guides even though they create time budget overruns.

Current and prospective accounting students often don't understand the 150 hour rule. That's "understandable" (I couldn't resist!) because what we refer to as a rule is anything but standardized.

The truth is that though nearly all states and provinces have adopted "the 150 hour rule" it varies substantially from location to location. So here is some information to help you sort through the complexity and decide what is best for you.

What is the 150 hour rule?

There probably are a lot of correct answers to this question. In my opinion, one answer stands out…or maybe doesn’t stand out. The reason is doesn’t stand out is because it is a hidden cost. There is no line item on a budget, we usually don’t plan for it and there is little the staff accountants can do about it. I’m talking about inadequate work space in the field.