The AICPA’s Auditing Standards Board (ASB) unanimously agreed to issue a final standard to align its guidance with PCAOB standards issued after the AICPA completed its Clarity Project in 2012. The board also made progress on its effort to converge its standards with the guidance issued by the International Auditing and Assurance Standards Board (IAASB) related to auditor reporting model, and it is planning to vote for a final standard at its January 2019 meeting.
The AICPA’s Auditing Standards Board (ASB) voted unanimously to issue a final standard to more closely align its guidance with the PCAOB’s standards during an October 15-17, 2018, meeting in Cincinnati.
The final standard, Statement on auditing Standards (SAS) Omnibus Statement on Auditing Standards—2019, will primarily amend AU-C Section 260, “Communications With Those Charged With Governance”, AU-C Section 550, “Related Parties,” and AU-C Section 240, “Consideration of Fraud in a Financial Statement Audit,” according to Ahava Goldman, associate director for audit and attest standards with the Association of International Certified Professional Accountants, a joint venture between the AICPA and the Chartered Institute of Management Accountants. It is expected to be issued in early 2019.
The board believes the amendments will improve the quality of private company audits.
The planned omnibus standard is expected to be based on Exposure Draft (ED): Proposed Statement on Auditing Standards: Omnibus Statement on Auditing Standards — 2018, which the AICPA published in November 2017. The proposal was issued to align the ASB’s standards with the guidance the PCAOB issued after the AICPA completed the Clarity Project in 2012. The AICPA’s Clarity Project was carried out to make its guidance easier to understand and use.
The standards include the PCAOB’s Auditing Standard (AS) 1301, Communication With Audit Committees , which strengthened the communications that auditors have with audit committees, and AS 2410, Related Parties , which toughened the requirements for auditors when they review the business deals of a client’s officers and directors for conflicts of interest.
The AICPA’s omnibus standard is expected to add communication requirements regarding the auditor’s views about a client’s significant unusual transactions. The anticipated changes will require auditors to communicate the potential effect of uncorrected misstatements on future financial statements, according to a discussion paper.
The ASB plans to add a requirement to look for previously unidentified or undisclosed related parties or significant related-party transactions. The requirement is intended to enhance the auditor’s response to the risks of material misstatement associated with related-party transactions, taking into account the information gathered during an audit.
At the meeting, the ASB also made progress on two related proposals that the AICPA issued at the same time it released the draft version of the omnibus standard. The two proposals are part of the board’s effort to converge with the standards issued by the International Auditing and Assurance Standards Board (IAASB). The ASB’s projects follow several changes the IAASB made in 2015 to its standards, including International Standards on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report , and ISA 720, The Auditor’s Responsibilities Relating to Other Information (Revised).
ED: Proposed Statements on Auditing Standards: Auditor Reporting and Proposed Amendments―Addressing Disclosures in the Audit of Financial Statements, would change the format of the report by requiring the “opinion” section to be presented first in the auditor’s report, followed by the “Basis for Opinion.” It would also expand the description of the responsibilities of management for preparing the financial statements and the description of the responsibilities of the auditor and key features of an audit.
It would not require communication of key audit matters (KAMs) for audits of nonissuers unless the terms of an audit engagement include KAM reporting. KAMs are matters that were communicated with those charged with governance and were found to be the most significant by the auditor.
During the October meeting, the ASB discussed some changes to the exposure draft in response to comment letters, and the board is planning to vote to issue a final standard in January, Goldman said.
Among the major decisions made in October is the inclusion of language in the auditor’s report related to management’s and auditor’s responsibilities on going concern.
The second proposal, ED: Proposed Statement on Auditing Standards: The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, would promote more consistency in audit work related to the information outside the financial statements.
The board is slightly behind on the “other information” project. In October, the ASB made some changes to the proposal and instructed a task force to bring a revised draft in January, Goldman said.
The ASB wants the standards to have the same effective dates to improve their implementation. The effective date is expected to be no earlier than for audits of financial statements for periods ending on or after December 15, 2020.