Could Auditing Get Any Clearer?
The Auditing Standards Board (ASB) has redrafted almost all of the auditing standards in an attempt to make them easier to read, understand, and apply. This is referred to as the Clarity Project, which began back in 2004 and is the first complete redrafting and recodification of U.S. Generally Accepted Auditing Standards (GAAS) since 1972. Although the main focus of the project was to present standards that are less confusing, auditors may need to make some adjustments to their current audit approach. As a result of the Clarity project, audit clients will see some changes to the engagement letter and audit report language for 2012 audits. While the clarified auditing standards do not substantially change what is required of the auditor, some new terminology is introduced. One of the new terms is “performance materiality,” which is an amount set by the auditor that is less than materiality for the financial statements as a whole in order to reduce to an appropriately low level the probability that any undetected misstatements would not exceed financial statement materiality. This new term is similar to “tolerable misstatement,” which is no longer referred to in the new auditing standards. Another change is the numbering of the standards, which are currently labeled “AU” for existing standards and “AU-C” for clarified standards, which will change to “AU” after implementation.
At the same time the ASB was working toward further clarity in the auditing standards, it was also working to converge the current U.S. standards with the International Standards on Auditing (ISAs), which are issued by the International Auditing and Assurance Standards Board (IAASB). The Public Company Accounting Oversight Board (PCAOB), a private-sector, non-profit corporation, created by the Sarbanes-Oxley Act, to oversee the auditors of public companies, has remained silent on the clarity project thus far.
The Clarified Auditing Standards, referred to as the codified SAS’s are effective for periods ending on or after December 15, 2012. Early implementation is not allowed.
For more information about the Audit Clarity Standards, click here.
The American Institute of Certified Public Accountants offers guidance and training on the topic here. If you would like to discuss this further, contact your BNN advisor at 1.800.244.7444
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.
