Eight new statements, collectively referred to as the Risk Assessment Standards, have been approved by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA). The new Statements on Auditing Standards (SAS), SAS No. 104 through SAS No. 111, will be available on or about March 8, 2006 and will go into effect for audits of financial statements for periods beginning on or after December 15, 2006.
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“These standards, along with out standard on fraud, get to the very heart of the audit process,” Chuck Landes, AICPA Vice President, Professional Standards and Services states. “Implementation of the new standards may require auditors to change their approach and perhaps the nature of the audit procedures performed. We believe that these standards, with support from the AICPA, will allow our members to find ways to improve the effectiveness of their audit engagements.”
The Risk Assessment Standards, as a group, establish standards and provide guidance concerning the auditor’s assessment of the risks of material misstatement (whether caused by fraud or error) in a non-issuer financial statement audit; design and performance of tailored audit procedures to address assessed risks; audit risk and materiality; planning and supervision; and audit evidence. They were developed with three objectives:
- A more in-depth understanding of the audited entity and its environment, including internal control;
- A more rigorous assessment of the risks of where and how the financial statements could be materially misstated;
- Improved linkage between the auditor’s assessed risks and the nature, timing and extent of audit procedures performed in response to those risks.
“The standards will result in more effective audits as a result of better risk assessments and improved design and performance of audit procedures to respond to the risks,” said John Fogarty, Chairman of the Auditing Standards Board. “These standards will better help auditors focus on those areas where risk of misstatement is the greatest.”
The AICPA has put together a comprehensive plan to support and assist members in implementing the new standards including:
- An audit risk alert, which will be available in March;
- Presentations and discussions at a number of AICPA conferences between now and December 15, 2006, the effective date of the standards.
- Two self-study CPE programs, to be released this summer.
- An audit guide, including case studies, due in the fall.