AICPA Proposes Seven SASs Related to Audit Risk
The proposed standards would require:
- More in-depth understanding of the entity and its environment, including its internal control, to identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them.
- More rigorous assessment of the risks of a material misstatement of the financial statements based on the above understanding.
- Improved linkage between the assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks.
The proposals were developed jointly with the International Auditing and Assurance Standards Board of the International Federation of Accountants. Key changes in audit practice that the proposed standards are expected to achieve are summarized in the document. Among other things, the key changes include greater emphasis on the entity's risk assessment process and on the testing of disclosures. Documentation requirements are also significantly expanded.
The proposed effective date is for audits of financial statements for periods beginning on or after December 15, 2004.