21 October 2008

PCAOB proposes new auditing standards

The new standards update the existing requirements to take account of the improved risk-based audit methodologies and relate to issues such as audit risk and materiality, audit planning and supervision, and the consideration of internal control.

The PCAOB proposes seven new auditing standards that would supersede the interim auditing standards related to audit risk and materiality, audit planning and supervision, consideration of internal control in an audit of financial statements, audit evidence, and performing tests of accounts and disclosures before year end.

 

“An important improvement contained in today’s proposals is the move to integrate and emphasize the auditor’s responsibilities to consider the risk of fraud during the audit”, Chairman Mark Olson said. “The purpose of this change is to prompt auditors to make a more thoughtful and thorough assessment of the risks of fraud and to develop appropriate audit responses.”

 

The proposed risk assessment standards are as follows:

• Audit Risk in an Audit of Financial Statements. This proposed standard describes the components of audit risk and the auditor's responsibilities for reducing audit risk to an appropriately low level in order to obtain reasonable assurance in an audit of financial statements.
• Audit Planning and Supervision. This proposed standard describes the auditor's responsibilities for planning the audit, including assessing matters that are important to the audit, and establishing an appropriate audit strategy and audit plan. The proposed standard also describes the responsibilities of the engagement partner and other engagement team members for supervising and reviewing the work of the engagement team.
• Identifying and Assessing Risks of Material Mis-statement. This proposed standard describes the auditor's responsibilities for identifying and assessing risks of material mis-statement. The risk assessment process discussed in the proposed standard includes information-gathering procedures to identify risks (e.g., obtaining an understanding of the company, its environment, and its internal control) and analysis of the identified risks.
• The Auditor's Responses to the Risks of Material Mis-statement. This proposed standard sets forth the auditor's responsibilities for responding to the risks of material mis-statement in the general conduct of the audit and specific audit procedures.
• Evaluating Audit Results. This proposed standard describes the auditor's responsibilities regarding the process of evaluating the results of the audit in order to form the opinion(s) to be presented in the auditor's report. This process includes evaluating uncorrected mis-statements and control deficiencies identified during the audit.
• Consideration of Materiality in Planning and Performing an Audit. This proposed standard sets forth the auditor's responsibilities for applying the concept of materiality, as described by the federal securities laws, in planning the audit and determining the scope of the audit procedures.
• Audit Evidence. This proposed standard sets forth the auditor's responsibilities regarding designing and applying audit procedures to obtain sufficient appropriate evidence to support the opinion(s) in the auditor's report. In particular, it discusses the principles for determining the sufficiency and appropriateness of audit evidence.

 

Deadline for comments is 18 February 2009.

 

Press release

Attached documents

 

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