PCAOB adopts new auditing standards on risk assessment

The Public Company Accounting Oversight Board has adopted a suite of eight auditing standards related to the auditor's assessment of, and response to, risk in an audit.

The suite of risk assessment standards, Auditing Standards Nos. 8 through 15, sets forth requirements that enhance the effectiveness of the auditor's assessment of, and response to, the risks of material misstatement in the financial statements.
 
The risk assessment standards address audit procedures performed throughout the audit, from the initial planning stages through the evaluation of the audit results.
 
"These new standards are a significant step in promoting sophisticated risk assessment in audits and minimizing the risk that the auditor will fail to detect material misstatements," said PCAOB Acting Chairman Daniel L. Goelzer. "Identifying risks, and properly planning and performing the audit to address those risks, is essential to promoting investor confidence in audited financial statements."
 
The PCAOB initially proposed a suite of standards on October 21, 2008. Changes were made in response to comments received and the PCAOB re-proposed the standards on December 17, 2009.
 
These standards supersede six PCAOB interim standards and related amendments: AU sec. 311, Planning and Supervision; AU sec. 312, Audit Risk and Materiality in Conducting an Audit; AU sec. 313, Substantive Tests Prior to the Balance Sheet Date; AU sec. 319, Consideration of Internal Control in a Financial Statement Audit; AU sec. 326, Evidential Matter; and AU sec. 431, Adequacy of Disclosure in Financial Statements.
 
The standards, if approved by the U.S. Securities and Exchange Commission, will become effective for audits of fiscal periods beginning on or after December 15, 2010.
 
Following are descriptions of each of the eight standards:
  • Auditing Standard 8 (AS No. 8) – Audit Risk. This standard discusses the auditor's consideration of audit risk in an audit of financial statements as part of an integrated audit or an audit of financial statements only. It 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 that the financial statements are free of material misstatement.
  • Auditing Standard 9 (AS No. 9) – Audit Planning. This standard establishes requirements regarding planning an audit, including assessing matters that are important to the audit, and establishing an appropriate audit strategy and audit plan.
  • Auditing Standard 10 (AS No. 10) – Supervision of the Audit Engagement. This standard sets forth requirements for supervision of the audit engagement, including, in particular, supervising the work of engagement team members. It applies to the engagement partner and to other engagement team members who assist the engagement partner with supervision.
  • Auditing Standard 11 (AS No. 11) – Consideration of Materiality in Planning and Performing an Audit. This standard describes the auditor's responsibilities for consideration of materiality in planning and performing an audit.
  • Auditing Standard 12 (AS No. 12) – Identifying and Assessing Risks of Material Misstatement.This standard establishes requirements regarding the process of identifying and assessing risks of material misstatement of the financial statements. The risk assessment process discussed in the standard includes information-gathering procedures to identify risks and an analysis of the identified risks.
  • Auditing Standard 13 (AS No. 13) – The Auditor's Responses to the Risks of Material Misstatement. This standard establishes requirements for responding to the risks of material misstatement in financial statements through the general conduct of the audit and performing audit procedures regarding significant accounts and disclosures.
  • Auditing Standard 14 (AS No. 14) – Evaluating Audit Results.This standard establishes requirements regarding the auditor's evaluation of audit results and determination of whether the auditor has obtained sufficient appropriate audit evidence. The evaluation process set forth in this standard includes, among other things, evaluation of misstatements identified during the audit; the overall presentation of the financial statements, including disclosures; and the potential for management bias in the financial statements.
  • Auditing Standard 15 (AS No. 15) – Audit Evidence.This standard explains what constitutes audit evidence and establishes requirements for designing and performing audit procedures to obtain sufficient appropriate audit evidence to support the opinion expressed in the auditor's report.
 
Related articles:

You may like these other stories...

Individuals interested in reviewing the proposed 2015 US Generally Accepted Accounting Principles (GAAP) taxonomy from the Financial Accounting Standards Board (FASB) have until October 31 to submit their written comments....
Ernst & Young 2013 audit deficiency rate 49%, regulators sayMichael Rapoport of the Wall Street Journal reported on Thursday that the Public Company Accounting Oversight Board (PCAOB) found deficiencies in 28 of the...
PwC must face $1 billion lawsuit over MF Global adviceA federal judge on Wednesday ordered PricewaterhouseCoopers (PwC) to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.