The Clarified Auditing Standards
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Transcript of The Clarified Auditing Standards
The Clarified Auditing StandardsMcNair, McLemore, Middlebrooks & Co., LLC
Why Change?Convergence with International Auditing StandardsEasier to read and apply
Effective for periods ending December 31, 2012
What are the big changes?
New opinion
New engagement letter
New representation letter
New requirements for group audits
Auditor required to inspect correspondence with licensing or regulatory authorities
Requires communication - in writing or orally - to management only, of management letter comments
No real change here the auditor still determines whether a control weakness (other than a significant deficiency or a material weakness) should be communicated
Communicate potential effect of significant deficiencies or material weaknesses
Potential effect does not need to be quantified
Attorneys LetterExisting standards require an attorneys letter when client has consulted with an attorney with regard to litigation
Attorneys LetterNow a principles-based decision to send the letter Send letter only if auditor assesses a risk of material misstatement (due to litigation) or when audit procedures indicate that material litigation exists
Must document your basis for not sending the attorneys letter
Auditing Opening BalancesStrengthens existing standards by requiring more than just reviewing the predecessor auditors work papers Must obtain sufficient evidence that opening balances do not contain misstatements that could materially affect current period financial statementsMust determine whether accounting policies have been consistently applied
Performance MaterialityEstablishes an additional level of materiality termed performance materiality
Provides for the effects of individually immaterial uncorrected and undetected misstatements
Performance Materiality Concept - to reduce overall materiality
for an estimate of potential misstatements based on: Prior experience and
Current period expectations
Performance Materiality Performance materiality runs to:
Classes of transactions Account balances
Disclosures
Service Organizations User auditor is required to inquire of
management about whether the service organization has reported to the company any: Fraud Noncompliance with laws and regulations
Uncorrected misstatements
What Did Not Change?Audit documentation
Fraud proceduresCommunication with those charged with governance Planning audits
What Did Not Change?Understanding the Entity and Assessing the Risks of Material Misstatement Materiality Analytical procedures Audit sampling
What Did Not Change?Auditing estimates, fair value and disclosuresSubsequent events
RememberChange your opinion Update your engagement letter
Update your representation letter
RememberUse new materiality worksheet Contact Quality Control if you have questions about group audits
RememberSAS 115 letters - communicate the potential effects of any significant deficiencies or material weaknesses
Inspect correspondence with regulatory or licensing authorities