Two new publications on PCAOB Auditing Standard No. 2 Released.

In June 2004, the Securities and Exchange Commission approved the Public Company Accounting Oversight Board's auditing standard on internal control--PCAOB Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with An Audit of Financial Statements.

This new standard provides the definitive guidance for independent auditors on their required assessments of internal control in connection with the audit of public company financial statements. To help independent auditors and financial managers understand the requirements of the recently issued standard, the AICPA has published two new books (see page 7 for order information; price each book: $65 member/$81.25 non-member). Following is a brief description of each of them.

PCAOB Auditing Standard No. 2: A Guide for Financial Managers (No. 006619CPA01) focuses on the way in which company management will conduct its own required assessment in internal control effectiveness. The standard requires auditors to assess the quality of the company's self-assessment of internal control; requires auditors to assess the adequacy of the company's documentation of internal control; allows the auditor to rely on the work performed by the company in its self-assessment process to support his or her conclusion on internal control effectiveness; and establishes the definition of a "material weakness" in internal control.

Pertinent guidance in the practice aid covers management's responsibilities relating to the company's self-assessment of internal control and the related audit; how the company may and may not work with its auditors to carry out its responsibilities; and the performance requirements for each major phase of the assessment of internal control, including planning the scope of the work, documenting internal control, evaluating the design effectiveness of internal control, testing the operating effectiveness of internal control, and assessing internal control deficiencies.

The Auditor's Guide to Understanding PCAOB Auditing Standard No. 2 (No. 006620CPA01) covers the two audits of publicly traded companies that auditors are now required to conduct: the traditional audit of financial statements and a new audit of internal control. The two audits are intended to be tightly integrated, with the same firm performing both audits, using the results of each to plan, perform and report on the engagement.

PCAOB Auditing Standard No. 2 is long, complex and nuanced. Many of the concepts and required procedures described in the standard will be new to auditors and difficult to implement.

The Auditor's Guide to Understanding PCAOB Auditing Standard No. 2 will walk auditors through all the key requirements of the standard and provide them with insight and analysis on what these requirements mean. This book covers the responsibilities of both management and the auditor relating to the audit of internal control; how each party may and may not work together to carry out their respective responsibilities; and the performance requirements for each major phase of the engagement, including planning the scope of the work, evaluating the design effectiveness of internal control, testing the operating effectiveness of internal control, assessing internal control deficiencies and reporting on overall effectiveness, communications with management and documentation requirements.