AICPA views the standard as mission-critical to the financial reporting world of the future -- a world in which companies make real-time disclosures over the Internet, and auditors provide contemporaneous assurance the information is reliable. Mr. Castellano said this scenario will not be possible without changes in both the reporting model and the focus of auditing.

The changing focus of auditing

In future assurance services, as AICPA envisions them, auditors will report on information systems and provide assurance that these systems are operating effectively. To help prepare auditors for this role, the new standard will provide guidance on how to assess the risk of management overriding the systems and preparing fraudulent and untruthful disclosures. The guidance will focus on two types of audit procedures:

• Explicit procedures to address the risk of management override of controls.
  
• Required procedures to evaluate the business rationale for significant unusual transactions.

The tentative timetable calls for issuance of a final standard by the end of the year.

Other reforms advocated by AICPA

In addition to the new audit standard, the AICPA advocates a list of near-term reforms. Specifically, AICPA wants the FASB to address non-financial performance indicators, unrecorded intangible assets, forward-looking information, off-balance sheet disclosures, reporting on the effectiveness of internal controls, and stock options. It wants the SEC to address insider trading and other disclosures, as well as auditor assurances on the Management Discussion and Analysis (MD&A) sections of SEC filings.

Download the full testimony from AICPA’s web site. Access additional coverage related to the Enron crisis, or read Mr. Castellano’s article in USA Today that outlines positions taken by the AICPA.

-Rosemary Schlank

James G , 22 February 2002 @ 23:30 PM  David, what planet are you from? Yes David, you’re right; lets ignore classification of revenues, expenses, gains and losses. We can inflate revenue, understate operating expenses, and make up for any difference as an extraordinary expense. After all, as long as the bottom-line income ties to the change in the beginning and ending balance sheets, nobody will care where it came from. This is especially true of analysts… they only look at the bottom line! They couldn’t care if the income is from recurring operations, one-time charges, currency translations, or tax expenses. Dissecting that information is useless to the average investor and therefore if we, as auditors, opine on the balance sheets and leave the income statement up to management, we can sleep peacefully at night knowing that we have done our job of presenting a reasonably fair and accurate picture of operations over the last period. Ok, the sarcasm ends here. PLEASE! Do not add a comment just for the sake of writing something. If you haven't the least bit of insight to add, it is better if you do not comment on this website at all. As for your claim that the "big guys" ignore the balance sheet, I have a truckload of working papers that would beg to disagree with you.

David Lowe , 20 February 2002 @ 21:13 PM  Why don't you really change the focus of auditing! Why don't the big guys and their buds at the AICPA focus on auditing like the CPAs at local firms do? They concentrate on that statement titled the BALANCE SHEET!! They confirm assets and liabilities (recognized and hidden). They really, really search for unrecognized and contingent liabilities. When you do a through job of verifying beginning and ending BALANCE SHEETS, the difference is income or loss. No need to ever restate unless you screwed up the BALANCE SHEET!! While the big guys deny it, they really do ignore the BALANCE SHEET!! If AA had the same focus on auditing that my firm has, I would not be writing this note!!