The PCAOB is reminding auditors to maintain their professional skepticism when they conduct audits.
A staff audit practice alert issued by the PCAOB said the board has observed continued instances in which auditors did not appropriately apply professional skepticism.
Staff Audit Practice Alert No. 10, Maintaining and Applying Professional Skepticism in Audits, is intended to assist audit firms in their application of professional skepticism in upcoming calendar year-end audits.
“Professional skepticism is an attitude that requires a questioning mind and a critical assessment of audit evidence,” PCAOB Chief Auditor and Director of Professional Standards Martin Baumann said at the AICPA Conference on Current SEC and PCAOB Developments in Washington. “It is essential to the performance of every audit and for effective audits.”
The practice alert is available at tinyurl.com/cr7p7fx.
A new International Auditing and Assurance Standards Board (IAASB) proposal would require auditors to read and consider information in certain documents that accompany audited financial statements.
If this additional information leads the auditor to identify a material inconsistency, or a misstatement in the audited financial statements, the auditor would be required to respond appropriately.
The ED, available at tinyurl.com/d4uydww, is called International Standard on Auditing (ISA) 720 (Revised), The Auditor’s Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor’s Report Thereon.
Depending on the nature of a material inconsistency discovered, the auditor’s responses could include:
- Requesting that management correct the other information, and making sure the correction is made.
- Reporting the matter to those charged with governance to get a correction made.
- Considering the reporting implications of the inconsistency.
- Withdrawing from the engagement, where possible under law.
A discovery that audited financial statements may be materially misstated could lead an auditor to report the inconsistencies in the auditor’s report. If the discovery occurs after the date of the auditor’s report, the auditor would be required to follow the guidance in ISA 560, Subsequent Events, regarding such discoveries.
The IAASB is an international body that develops auditing and assurance standards and guidance. It has set a due date of March 14 for comments on ISA 720 (Revised).
Auditors looking for guidance on the new clarified auditing standard about audits of group financial statements can turn to a new resource.
The new standard, AU-C Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) (AICPA, Professional Standards), took effect for audits of group financial statements beginning for calendar year 2012/fiscal year 2013 audits as part of the AICPA Auditing Standards Board’s clarity project.
Nonauthoritative guidance regarding the implementation of AU-C Section 600 is available in 23 Technical Questions and Answers (TPAs) that are available in new TIS Section 8800, Audits of Group Financial Statements and Work of Others.
The TPAs, available at tinyurl.com/6kj2uku, are based on the questions and answers included in the Audit Risk Alert Understanding the Responsibilities of Auditors for Audits of Group Financial Statements—2012.