New Risk Assessment Standards
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Effective for 2007 Calendar Year-End Audits
In order to improve the quality and effectiveness of audits, the AICPA’s Auditing Standards Board (ASB) has issued eight Statements on Auditing Standards (SAS) relating to the assessment of risk in an audit of financial statements.
The new audit standards are referred to as the “Risk Assessment Standards” and encompass Statements on Auditing Standards Nos. 104 through 111 as follows:
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SAS No. 104 - Amendment to Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures (“Due Professional Care in the Performance of Work”)
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SAS No. 105 - Amendment to Statement on Auditing Standards No. 95, Generally Accepted Auditing Standards
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SAS No. 106 - Audit Evidence
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SAS No. 107 - Audit Risk and Materiality in Conducting an Audit
- SAS No. 108 - Planning and Supervision
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SAS No. 109 - Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
- SAS No. 110 - Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
- SAS No. 111 - Amendment to Statement on Auditing Standards No. 39, Audit Sampling
These new standards are effective for audits of financial statements for periods beginning on or after December 15, 2006.
In the AICPA Audit Risk Alert, "Understanding the New Auditing Standards Related to Risk Assessment", the ASB’s primary objectives for the new standards are for auditors to:
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Develop a more in-depth understanding of the audited entity and its environment, including its internal control.
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Make a more rigorous assessment of the risk of material misstatement of the financial statements, based on the understanding of the internal control environment.
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Have improved linkage between the auditor's assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks.
These standards could drastically change the way some CPA firms perform audits. The impact of the standards will require more time in the up-front planning phase of the audit and it is expected that audit fees could increase between 20-30% as a result of the new Standards and related requirements.
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John is a Senior Manager in our Accounting & Auditing Services Group. His experience includes accounting and auditing issues relating to assisted living and residential care, HUD-financed projects, manufacturers, intermediate care facilities for the mentally retarded, and Medicaid and Medicare reimbursement. John also lends his expertise to family-owned businesses.
If you have questions on any of these or other planning opportunities please feel free to contact John or your Howard, Wershbale & Co. A&A Professional.