ASB issues auditing standard on integrated audits
FINANCIAL REPORTING INSIGHTS |
Because engagements performed under AT section 501, An Examination of an Entity’s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements, are required to be integrated with an audit of financial statements, the Auditing Standards Board (ASB) has moved the content of AT section 501 from the attestation standards into generally accepted auditing standards (GAAS). Therefore, the ASB recently issued Statement on Auditing Standards (SAS) No. 130, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements.
When drafting the SAS, the intention of the ASB was to adhere as closely as possible to AT section 501 and Public Company Accounting Oversight Board Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements, while aligning with GAAS and avoiding unintended consequences in practice. The SAS includes the following changes:
- The SAS requires the auditor to examine and report directly on the effectiveness of internal control over financial reporting. There is no longer an option to examine and report on management’s assertion about the effectiveness of internal control over financial reporting.
- The term significant account or disclosure used in AT section 501 has been changed to significant class of transactions, account balance or disclosure to align with terminology used in GAAS and clarify that the risk factors the auditor is required to evaluate in the identification of significant classes of transactions, account balances and disclosures and their relevant assertions are the same in the audit of internal control over financial reporting as in the audit of the financial statements.
- The SAS allows, as does AT section 501, the auditor to use the work of internal auditors and others in obtaining evidence about the effectiveness of internal control over financial reporting. Although AU-C section 610, Using the Work of Internal Auditors, does not discuss “others,” the SAS would require the auditor planning to use the work of others in the audit of internal control over financial reporting to adapt and apply, as necessary, the requirements of AU-C section 610, including the need for others to apply a systematic and disciplined approach.
The SAS is effective for integrated audits of nonissuers for periods ending on or after December 15, 2016.