The AICPA’s Auditing Standards Board (ASB) voted to finalize its proposal on group audits during a video meeting held from Jan. 30 to 31, 2023.
The board finalized—with some changes—Proposed Statement on Auditing Standards (SAS), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to-Auditors), which was issued in March 2022.
The AICPA is preparing to issue SAS No. 149, which will supersede SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, as amended, section 600, Special Considerations, Audits of Group Financial Statements (Including the Work of Component Auditors), according to Ahava Goldman, an associate director with the Association of International Certified Professional Accountants.
“The most significant change introduced by SAS No. 149 is that it provides a risk-based approach to planning and performing a group audit,” noted Goldman, who is the staff liaison for the ASB.
Currently, “AU-C section 600 focused on the identification of significant components at which to perform audit work,” Goldman added. “In SAS No. 149, the group auditor uses professional judgment in determining the components at which to perform procedures that respond to assessed risks.”
According to a January 2023 draft of the standard, the “determination is based on the group auditor’s understanding of the group and its environment, and other factors such as the ability to perform audit procedures centrally, the presence of shared service centers, or the existence of common information systems and controls.”
In particular, the draft standard notes that the determination of significant risks allows for the auditor to pay more attention on those risks that are close to the upper end of the spectrum of inherent risk.
SAS No. 149 also clarifies the interaction of the group audit standards with other standards, including AU-C Section 220, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards, AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement and AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence.
The standard includes a definition section to spell out what certain terms mean, including aggregation risk, component auditor and referred-to auditor.
For example, aggregation risk is “the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.”
Referred-to auditor is defined as an “auditor who performs an audit of the financial statements of a component to which the group engagement partner determines to make reference in the auditor’s report on the group financial statements. A referred-to auditor is not a component auditor, and accordingly, is not a part of the engagement team for a group audit.”
A component auditor is part of the engagement team in a group audit.
When SAS No. 149 is issued, it will be effective for audits of group financial statements for periods ending on or after Dec. 15, 2026.
This article originally appeared in the Feb. 9, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.
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