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Views expressed by ASB Board members and AICPA employees are expressed for
purposes of deliberation, providing member services and other purposes exclusive of
practicing public accounting. The views expressed do not necessarily represent the
official views of the AICPA unless otherwise noted. Official AICPA positions are
determined through certain specific committee procedures, due process and
deliberation.
Disclaimer
• Recently issued audit and attest standards and guidance
• Recent exposure drafts
• Other standard-setting projects
• Interpretive publications and staff guidance
Session will cover:
3
Recently issued auditing standards (other than auditor reporting standards)
SAS No. 142, Audit Evidence ASB taking the lead; IAASB
is closely monitoring.
Effective for periods
ending on or after
December 15, 2022
Addressing evolving nature of audit services
Emerging tools and techniques, including
data analytics
Professional skepticism
External information sources
Audit Evidence
Brand name and presentation title
• “The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence…”
Extant objective:
• “The objective of the auditor is to evaluate information to be used as audit evidence, including the results of audit procedures, to inform the auditor’s overall conclusion about whether sufficient appropriate audit evidence has been obtained.”
Proposed objective:
SAS 142, Audit Evidence
Audit Evidence
“Information used by the auditor in arriving at the conclusions on
which the auditor’s opinion is based. Audit evidence is information to
which audit procedures have been applied and consists of information
that corroborates or contradicts assertions in the financial statements.”
SAS 142, Audit Evidence
• Develops a framework for evaluating attributes of audit evidence to
evaluate
– Sufficiency and
– Appropriateness
• relevance and reliability (including its source)
– Whether the information is corroborates or contradicts
management’s assertions
– Whether the information is sufficiently precise and detailed
Sufficiency and
appropriateness
together affect the
persuasiveness of
audit evidence
SAS 142, Audit Evidence
– Explains relationship between AU-C 500 and AU-C 330
• AU-C 330 requires that the higher the risk of material
misstatement, the more persuasive audit evidence should be
– Persuasive = amount of appropriate evidence
• AU-C 330 requires that sufficient appropriate evidence is
required to provide a basis for the auditor’s report
SAS 142, Audit Evidence–Sources
“Information to be used as
audit evidence may be
obtained directly or derived
individually or in
combination from different
sources”
Management
External information sources and other
external parties
Auditor
SAS 142, Audit Evidence
Reliability
Accuracy
Completeness
Authencity
Susceptibility to Management’s Bias
“The reliability of
information to be used
as audit evidence is
affected to varying
degrees by the following
attributes, individually or
in combination”
SAS 142, Audit Evidence - Audit Procedures
Audit Evidence
Substantive Audit
Procedures
Test of Controls
Risk Assessment Procedures
“The auditor may use
automated tools and
techniques to process,
organize, structure, or
present data in a given
context in order to generate
useful information that can be
used as audit evidence.”
“An auditor may use
automated tools and
techniques to perform both a
risk assessment procedure
and a substantive procedure
concurrently.”
SAS 143, Auditing Accounting Estimates and
Related Disclosures
• Voted as a final SAS at the May 2020 ASB meeting
• Effective for audits of financial statements for periods ending on or
after December 15, 2023
• Supersedes AU-C section 540
• Converges with ISA 540 (Revised), Auditing Accounting Estimates
and Related Disclosures
• Addresses the auditor’s responsibilities relating to accounting
estimates, including fair value accounting estimates, and related
disclosures in an audit of financial statements.
ASB voted to issue
as a final SAS at its
May 2020 Meeting –
will be SAS No. 143
Effective for periods
ending on or after
December 15, 2023
SAS 143, Estimates: Fundamental Aspects
• Explains the nature of accounting estimates and the concept of
estimation uncertainty
• Address scalability of the SAS for all types of accounting estimates,
from relatively simple to complex
• Requires a separate assessment of inherent risk and control risk
• Includes risk assessment requirements more specific to estimates
and addresses the increasingly complex business environment and
complexity in financial reporting frameworks
• Addresses the exercise of professional skepticism when auditing
accounting estimates
Intended to enable
auditors to
appropriately
address the
increasingly
complex scenarios
that arise from new
accounting
standards that
include estimates
SAS 143, Estimates: Fundamental Aspects
– Emphasizes that further audit procedures need to be responsive
to the reasons for the assessed risks of material misstatement at
the relevant assertion level
– Emphasizes the importance of the auditor’s decisions about
controls relating to accounting estimates by providing estimates-
specific guidance on relevant requirements in other AU-C
sections
– Requires the auditor to evaluate, based on the audit procedures
performed and the audit evidence obtained, whether the
accounting estimates and related disclosures are reasonable in
the context of the applicable financial reporting framework.
Consistent with the
risk assessment
project to revise AU-C
315 currently in
process
Recently issued and upcoming attestation standards
Proposed SSAE Revisions to SSAE No. 18
• Proposed revisions to agreed-upon procedure
engagements, review engagements and examination
engagements
• Reviews:
– More explicit description of the procedures that may be
performed
– Report to include an informative summary of the work
performed as basis for conclusion
– Allow adverse conclusion
Exposure Draft,
Revisions to
Statement on
Standards for
Attestation
Engagements No.
18: Clarification and
Recodification,
issued July 11,
2018. The comment
period ended
October 11, 2018.
SSAE No. 19, Agreed-Upon Procedures
Engagements• Issued December 2019
• Does not require an assertion from the responsible party
• Doesn’t require that the procedures be known at the beginning of the
engagement; instead provides flexibility by allowing procedures to be
developed over the course of the engagement, by or with the
assistance of, the practitioner
• Engaging party required to acknowledge that the procedures are
appropriate for the intended purpose of the engagement prior to the
issuance of the report.
• Doesn’t require intended users to take responsibility for the sufficiency
of the procedures
• Permits general-use report unless certain conditions exist
SSAE 19 is effective
for agreed-upon
procedures reports
dated on or after July
15, 2021. Early
implementation is
permitted.
Proposed SSAE (No. 21), Direct Examination
Engagements
• Direct Examination Engagements
– Proposed new AT-C section 206 that provides
requirements and guidance as to how AT-C section 205
should be applied and adapted for direct engagements.
– Measurement or evaluation of the subject matter against
the criteria
• Allows practitioner to, and does not require that
responsible party, measure or evaluate subject matter
against criteria
• Obtaining a written assertion from responsible party not
required in a direct engagement
ASB voted to ballot
for issuance as a
final standard on
August 12, 2020.
AT-C section 205
will be renamed
Assertion-Based
Examination
Engagements
Other standard-setting projects
Proposed Risk Assessment SAS
• Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment
• Approved for issuance as an exposure draft at July 23 ASB Meeting
• Comment period will be 90 days
Proposed Risk Assessment SAS (AU-
C sec. 315)
Major areas of revision are
• Concept of spectrum of risk
• Amended definition of significant risks
Significant risk:
An identified risk of material misstatement:
• For which the assessment of inherent risk is close to the upper end of the spectrum of inherent risk due to the degree to which inherent risk factors affect the combination of the likelihood of a misstatement occurring and the magnitude of the potential misstatement should that misstatement occur; or
• That is to be treated as a significant risk in accordance with the requirements of other AU-C sections.
High end (Significant
risks)
Low end
Proposed Risk Assessment SAS (AU-C sec.
315)• Major areas of revision (cont’d)
– 5 new inherent risk factors: subjectivity, complexity, uncertainty,
change and susceptibility to misstatement due to management
bias or fraud.
– Requiring separate assessments of inherent and control risk
• If no tests of controls are performed, RoMM = IR
– Requiring for “sufficient, appropriate” evidence as basis for risk
assessment
– Stand-back requirement for material COTABDs not assessed as
significant
Other projects
• Estimates phase II
• AU-C 501 considerations
• PCAOB Appendices on pricing sources
• Convergence with IAASB Quality Management standards
• NOCLAR – project plan has been developed and ED expected in
late 2020
• Special purpose frameworks- phase II (compliance frameworks)
IAASB Quality Management Standards (Proposed)
• International Standard on Quality Management
(ISQM) 1, Quality Management for Firms that
Perform Audits or Reviews of Financial
Statements, or Other Assurance or Related
Services Engagements
• ISQM 2, Engagement Quality Reviews
(New!)
• ISA 220 (Revised), Quality Management for an
Audit of Financial Statements
• Related conforming amendments
ISQM 2
(new)ISA 220
(Revised)
ISQM 1
(Previously
ISQC 1)
ASB implications
#
• Lack of convergence would result in many firms needing dual
systems of quality control and quality management – not
practicable
• PCAOB issued Concept Release in December 2019 that
considers using ISQM 1 as a starting point for a future PCAOB
QC standard
• ASB policy is to converge with IAASB standards
• ASB expects to issue exposure draft of proposed quality
management standards in 2021
Key ISQM 1 ED Proposals
1. New risk-based approach focused on quality
management
2. Revised components of the system of quality
management
3. New Risk assessment process
4. Enhanced Monitoring and remediation process
5. New Requirements for networks and service providers
27
#AICPAENGAGE #AICPAnaaats
Key aspects that clarify and improve proposed
ISQM 1 include
Risk Assessment Process
282
8
Establish quality
objectives
• Some prescribed
• Additional or more granular if necessary
Identify and assess
quality risks
Design and implement responses
• Prescribed responses
• Additional responses if necessary
Risk Assessment Process: Identify and Assess Quality Risks
29
Understand the factors (that is, conditions, events, circumstances, actions or inactions) that may adversely affect the achievement
of the quality objective.
Consider how, and the degree to which, the factors may adversely affect the achievement of the quality
objective.
Assessed quality risk:
A risk that has a reasonable possibility of:
(i) Occurring; and
(ii) Individually, or in combination with other risks, adversely affecting the achievement of one or more quality objectives.
Auditor Reporting Standards
SAS Nos. 134-141
SAS No. 141, Amendment to the Effective
Dates of SAS Nos. 134-140
• Issued May 2020 to allow for a one-year delay of the
effective dates of SAS Nos. 134-140
• Changed the effective dates from December 15, 2020 to
December 15, 2021
– Provides additional time for effective implementation in
light of COVID-19 pandemic
– Allows for early implementation
• ASB recommends that the SASs be implemented
concurrently
SAS 139 & SAS 140: Auditor Reporting
Conforming Amendments
• SAS No. 139, Amendments to AU-C Sections 800, 805,
and 810 to Incorporate Auditor Reporting Changes From
SAS No. 134
• SAS No. 140, Amendments to AU-C Sections 725, 730,
930, 935, and 940 to Incorporate Auditor Reporting
Changes From SAS Nos. 134 and 137
– Updates the form and content of auditor’s reports
addressed in these AU-C sections
SAS No. 138 and SSAE No. 20,
Amendments to the Description of the
Concept of Materiality• Issued December 2019
• Amends AU-C section 320 and various other AU-C and AT-C
sections – not intended to change US practice
• Amendments intended to eliminate inconsistencies between
the AICPA Professional Standards and the definition of
materiality used by the U.S. judicial system and other U.S.
standard setters and regulators.
• Is in the public interest to have a consistent description
• Prompted by recent FASB amendment of its description of
materiality to be more consistent with others in the US
Misstatements, including
omissions, are considered
to be material if they there
is substantial likelihood
that, individually or in the
aggregate, could
reasonably be expected to
they would influence the
economic decisions of users
judgment of a reasonable
user made based on the
basis of the financial
statements.
3434
SAS No. 137: Other Information
• SAS No. 137, The Auditor’s Responsibilities Relating to Other
Information Included in Annual Reports
• Supersedes AU-C section 720, Other Information in Documents
Containing Audited Financial Statements
• Clarifies the auditor is required to apply procedures only to other
information included in annual reports (or similar documents).
• Revises work effort to require the accountant to remain alert for
information that is misleading, including because it omits or
obscures information necessary for a proper understanding of a
matter disclosed in the other information
• Requires a separate section be included in the auditor’s report
addressing OI
3535
SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA
• Final standard approved at July 2018 meeting, subject to
revisions to conform to SAS 134; issued July 2019
• New AU-C section 703 (AU-C 700 would no longer apply
for ERISA plans)
• Requirements to enhance audit quality and revised
auditor’s report on ERISA plan financial statements and
provide better insight into responsibilities of
management and the auditor
If you audit ANY
employee benefit
plans, you must
read and
understand SAS No.
136, especially if
you perform
“limited-scope”
audits!
3636
SAS 135, Omnibus Statement on
Auditing Standards – 2019
• Amendments to AU-C 260, Communication with TCWG, and AU-C
550, Related Parties, as well as various other sections
• Amendments intended to enhance audit quality by heightening the
auditor’s focus on
• related parties and relationships and transactions with related
parties
• Significant unusual transactions
• ASB considered PCAOB AS 16, AS 17 and AS 18
Auditor Reporting – AU-C 700 Series
• SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements
– Changes form and content for all auditor’s reports
under GAAS
• Consistent with the IAASB’s revised auditor’s report
• Consistent with the PCAOB’s revised auditor
reporting model as to positioning of the Opinion and
Basis for Opinion sections.
• Enhances the communicative value and relevance
of the auditor’s report
Two versions of
Professional
Standards
Codification:
• Pre-SAS 134 with
“B” sections
• Post-SAS 133
with the traditional
structure
(superseded
sections marked
with “A”)
Significant Changes to the Auditor’s Report
• Opinion section first
• “Basis for Opinion” section second and includes a statement that
• the auditor is required to be independent of the entity and to
meet the auditor’s other ethical responsibilities, in accordance
with the relevant ethical requirements relating to the audit
– Key Audit Matters section (New AU-C section 701)
• Not Mandatory: only include if engaged to include (agreed in
terms of engagement that report will include KAMs)
• If included, requirements apply
• “What keeps the auditor up at night”
• Selected from matters communicated with TCWG
Significant Changes to the Auditor’s Report
cont’d
• Expanded descriptions of the responsibilities of
– management relating to going concern evaluation,
when required by the applicable financial reporting
framework
– the auditor, including relating to
• professional judgment and professional skepticism
• going concern
• communications with those charged with
governance
SAS No. 134 – Sections 705 & 706
• Changes to conform to new section 700
• No change regarding
• when a modification is required
• determining the type of modification to the auditor’s report
Section 705, Modifications to the
Opinion in the Independent Auditor’s
Report
• Changes clarify the relationship between EOM paragraphs and KAMs in the auditor’s report: when section 701 applies, can’t substitute an EOM paragraph for a description of individual KAMs in “Key Audit Matters” section
• EOM requires an appropriate heading; if KAMs included, use the term “Emphasis of Matter” in EOM heading
Section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs
in the Independent Auditor’s Report
SAS No. 134: Amendments
• Amendments to various other sections to focus auditor
attention on disclosures throughout the audit process
• Amendments to:
– AU-C 260 (Communication with Those Charged with
Governance): Auditor required to communicate with
TCWG about the significant risks identified by the
auditor
– AU-C 330 (Performing Audit Procedures): More
specificity about considerations in evaluating the
presentation of the financial statements
SAS No. 134 – Going Concern
AU-C 700 now includes a requirement to report in accordance with AU-C 570 (Going Concern) when applicable
AU-C 570 amended to replace EOM paragraph required if substantial doubt remains with a separate section headed “Substantial Doubt About the Entity’s Ability to Continue as a Going Concern”
Wording is similar
43
What should you be doing now?
Review and update firm methodologies
and guidance
Consider the impact of amendments
(e.g., engagement letters)
Consider the training needs for
engagement teams
Educate your clients & their users about
new form and content of the
auditor’s report
44
Illustrative ReportIndependent Auditor’s Report
[Appropriate Addressee]
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of ABC Company, which comprise the balance
sheets as of December 31, 20X1 and 20X0, and the related statements of income, changes in
stockholders’ equity, and cash flows for the years then ended, and the related notes to the
financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects,
the financial position of ABC Company as of December 31, 20X1 and 20X0, and the results of
its operations and its cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
45
Illustrative Report
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the
United States of America (GAAS). Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of ABC Company and to meet our other
ethical responsibilities, in accordance with the relevant ethical requirements relating to our
audits. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
46
Illustrative Report
Key Audit Matters [Not required – may be addressed in the terms of the engagement]
Key audit matters are those matters that were communicated with those charged with
governance and, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with AU-C 701.]
47
Illustrative Report
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with accounting principles generally accepted in the United
States of America, and for the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there
are conditions or events, considered in the aggregate, that raise substantial doubt about
ABC Company’s ability to continue as a going concern for [insert the time period set by the
applicable financial reporting framework].
48
Illustrative Report
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not absolute assurance and therefore is not a guarantee that an audit
conducted in accordance with GAAS will always detect a material misstatement when it
exists. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered
material if there is substantial likelihood that, individually or in the aggregate, they would
influence the judgment of a reasonable user made based on the financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism throughout the
audit.
49
Illustrative Report
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, and design and perform audit procedures responsive to
those risks. Such procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of ABC Company’s internal control.
Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about ABC Company’s ability to continue as a
going concern for a reasonable period of time.
50
Illustrative Report
We are required to communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit, significant audit findings, and
certain internal control related matters that we identified during the audit.
Report on Other Legal and Regulatory Requirements
[The form and content of this section of the auditor’s report would vary depending on the
nature of the auditor’s other reporting responsibilities.]
[Signature of the auditor’s firm]
[City and state where the auditor’s report is issued]
[Date of the auditor’s report]
Helpful Information and Resources
• Auditing Standards Board information
https://www.aicpa.org/interestareas/frc/auditattest.html a
• Authoritative standards for non-issuers (SASs, SSARSs, SSAEs, SQCSs) as of June 1
are available at
http://www.aicpa.org/RESEARCH/STANDARDS/Pages/default.aspx
• AICPA Accounting and Auditing Technical Hotline
(877) 242-7212 - [email protected]
http://www.aicpa.org/Research/TechnicalHotline/Pages/TechnicalHotline.aspx
COVID-19 Audit & Accounting
Resource Center
• Free resources at aicpa.org/covidaudit:
– FAQs
– Illustrative disclosures
– Center for Plain English Accounting (CPEA) reports
– Videos with AICPA Chief Auditor
– Journal of Accountancy articles
• More at aicpa.org/coronavirus
52
Center for Plain
English Accounting (CPEA)
Membership includes:
• Timely written responses to technical inquiries
• Monthly A&A reports- in plain English
• 24 hours of CPE via webcast
• Alerts summarizing new accounting guidance
• Library of over 400 past reports
Learn more at:
www.aicpa.org/cpea
Questions?
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Thank you© 2018 Association of International Certified Professional Accountants. All rights reserved.
Thank you© 2019 Association of International Certified Professional Accountants. All rights reserved. This presentation’s images are subject to copyright protection and used under license from
third parties. Do not use images from this presentation in other presentations or documents without first consulting with Legal. The use of copyrighted images outside the
licensed scope constitutes copyright infringement and subjects the user to monetary damages and other penalties.
Thank you© 2019 Association of International Certified Professional Accountants. All rights reserved. This presentation’s images are subject to copyright protection and used under license from
third parties. Do not use images from this presentation in other presentations or documents without first consulting with Legal. The use of copyrighted images outside the
licensed scope constitutes copyright infringement and subjects the user to monetary damages and other penalties.
