PCAOB Proposes 7 Risk Assessment Standards, 120-Day Comment Period

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By Edith Orenstein, FEI Financial Reporting Blog -
Earlier today, the Public Company Accounting Oversight Board voted unanimously to release for a 120 day comment period, a suite of 7 proposed risk assessment standards, and related conforming amendments to other interim standards. PCAOB staff mentioned there will be an appendix outlining each proposed standard, focusing on changes to the existing standards, and another appendix will note major differences from related IAASB International Standards on Auditing (ISAs).

As noted in PCAOB's press release, the seven proposals are:

1. Audit Risk in an Audit of Financial Statements. This proposed standard describes the components of audit risk and the auditor's responsibilities for reducing audit risk to an appropriately low level in order to obtain reasonable assurance in an audit of financial statements.

2. Audit Planning and Supervision. This proposed standard describes the auditor's responsibilities for planning the audit, including assessing matters that are important to the audit, and establishing an appropriate audit strategy and audit plan. The proposed standard also describes the responsibilities of the engagement partner and other engagement team members for supervising and reviewing the work of the engagement team.

3. Identifying and Assessing Risks of Material Misstatement. This proposed standard describes the auditor's responsibilities for identifying and assessing risks of material misstatement. The risk assessment process discussed in the proposed standard includes information-gathering procedures to identify risks (e.g., obtaining an understanding of the company, its environment, and its internal control) and analysis of the identified risks.

4. The Auditor's Responses to the Risks of Material Misstatement. This proposed standard sets forth the auditor's responsibilities for responding to the risks of material misstatement in the general conduct of the audit and specific audit procedures.

5. Evaluating Audit Results. This proposed standard describes the auditor's responsibilities regarding the process of evaluating the results of the audit in order to form the opinion(s) to be presented in the auditor's report. This process includes evaluating uncorrected misstatements and control deficiencies identified during the audit.

6. Consideration of Materiality in Planning and Performing an Audit. This proposed standard sets forth the auditor's responsibilities for applying the concept of materiality, as described by the federal securities laws, in planning the audit and determining the scope of the audit procedures.

7. Audit Evidence. This proposed standard sets forth the auditor's responsibilities regarding designing and applying audit procedures to obtain sufficient appropriate evidence to support the opinion(s) in the auditor's report. In particular, it discusses the principles for determining the sufficiency and appropriateness of audit evidence.

See also highlights from discussion at the board meeting here.

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