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Auditing Standards Board issues exposure draft on risk assessment process. (accounting & auditing news).

As part of its ongoing efforts to enhance the quality of audits, the Auditing Standards Board has exposed a suite of seven proposed statements on auditing standards relating to the auditor's risk assessment process. The ASB believes that adoption of the requirements and guidance provided in the proposed SASs would result in a substantial change in audit practice and in more effective audits. Comments are due Apr. 30.

The primary objective of the proposed SASs is to enhance auditors' application of the audit risk model in practice by requiting:

* More in-depth understanding of the entity and its environment, including its internal control, to identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them.

* More rigorous assessment of the risks of material misstatement of the financial statements based on that understanding.

* Improved linkage between the assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks.

The proposed SASs were developed in response to the report of the Public Oversight Board Panel on Audit Effectiveness, an extensive study of audit performance with related recommendations to constituents, including recommendations to the ASB to increase the rigor and specificity of auditing standards in various areas. In particular, the proposed standards address recommendations with respect to assessing inherent risk, assessing control risk, and linking the risk assessments to substantive procedures. In addition, recent major corporate failures have undermined the public's confidence in the effectiveness of audits and led to an intense scrutiny of the work of auditors, and the proposed guidance also has been influenced by these events.

The proposed SASs are the outcome of a joint project of the ASB and the International Auditing and Assurance Standards Board of the International Federation of Accountants. The proposed SASs are thus also representative of the effort among standard setters to promote the convergence and acceptance of an international set of auditing standards. The IAASB simultaneously is exposing proposed International Standards on Auditing that are essentially the same in substance, except to the extent of additional requirements that are included in the SASs to conform to other U.S. standards.

The exposure draft consists of the following proposed SASs:

* Amendment to Statement on Auditing Standards No. 95, Generally Accepted Auditing Standards

* Audit Evidence, which will supersede SAS No. 31, Evidential Matter (AICPA, Professional Standards, vol. 1, AU sec. 326)

* Audit Risk and Materiality in Conducting an Audit, which will supersede SAS No. 47, Audit Risk and Materiality in Conducting an Audit (AICPA, Professional Standards, vol. 1, AU sec. 312)

* Planning and Supervision, which will supersede SAS No. 1, Codification of Auditing Standards and Procedures (AICPA, Professional Standards, vol. 1, AU sec. 310, "Appointment of the Independent Auditor"), and SAS No. 22, Planning and Supervision (AICPA, Professional Standards, vol. 1, AU sec. 311)

* Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Assessing Risks)

* Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained, which will supersede SAS No. 45, Substantive Tests Prior to the Balance-Sheet Date (AICPA, Professional Standards, vol. 1, AU sec. 313), and, together with the proposed SAS Assessing Risks will supersede SAS No. 55, Consideration of Internal Control in a Financial Statement Audit (AICPA, Professional Standards, vol. 1, AU sec. 319)

* Amendment to Statement on Auditing Standards No. 39, Audit Sampling

The proposed SASs will be exposed in a single document that is available as a downloadable pdf file on the AICPA Web site:

[computer] www.aicpa.org/members/div/auditstd/index.htm
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Publication:CPA Letter
Date:Dec 1, 2002
Words:593
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