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Newsletter - Winter 2007
New Standards Significantly Change Auditing Profession
Ilyssa Blum, Partner, Assurance Services |
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The Auditing Standards Board established 10 new standards: two that will take effect for calendar year 2006 and eight that will take effect for calendar year 2007. The goal of these auditing standards (SASs) is to strengthen the effectiveness and the quality of audits, especially in light of major corporate failures in recent years. These are significant changes for the auditing profession that impact how annual financial statement audits are performed.
The new standards place more of an emphasis on internal controls and risk management. They require that:
- Auditors gain a more thorough understanding of their clients' internal controls.
- Auditors obtain more detailed information about their clients' operations, their business objectives and strategies, and the risks to achieving these objectives.
- Client management clearly accept responsibility for preparing all financial information and the company's financial statements.
The new standards will require auditors to perform more extensive procedures for each audit. Clients also will be required to supply information and documentation that was not required in the past. In addition, because of the new requirements related to internal controls, auditors may report to clients, in writing, internal control deficiencies that were not previously reported. As a result, client fees will likely increase.
The standards affecting clients for calendar year 2006:
SAS 103, Audit Documentation. Audit workpapers must be presented, so an experienced auditor without connection to the audit can understand:
- Worked Performed
- Results of that work
- Evidence obtained
- Conclusions reached
- Accounting records that agree or reconcile with the financial statements or other information
SAS 112, Communicating Internal Control-Related Matters Identified in an Audit. This standard requires auditors to communicate in writing significant deficiencies and material weaknesses identified during an audit. The standard defines the terms control deficiency, significant deficiency and material weakness.
SAS 104 through 111, which relate to risk assessment, become effective for calendar year 2007. The Auditing Standards Board believes that by increasing the auditors' understanding of the client--including internal controls, assessing where the risks lie and then planning the audit procedures to respond to those risks-the audit process will be more integrated and, thus, more effective.
The Assurance team at Rachlin has an in-depth knowledge of these new standards.We are planning a forum in May 2007 that will provide clients and their stakeholders an opportunity to learn more about the effects of these standards on financial statement audits. In the meantime, the team is ready to help answer questons or provide more information.
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