PCAOB Adopts Suite of Risk Assessment Standards for Audits

The PCAOB on Thursday adopted a suite of eight auditing standards, Auditing Standards (AS) no. 8 through no. 15, that the board said would enhance the effectiveness of the auditor’s assessment of, and response to, the risks of material misstatement in financial statements.


The risk assessment standards address audit procedures performed throughout the audit, from the initial planning stages through the evaluation of audit results.


The standards, if approved by the SEC, will be effective for audits of fiscal periods beginning on or after Dec. 15, 2010.


“These new standards are a significant step in promoting sophisticated risk assessment in audits and minimizing the risk that the auditor will fail to detect material misstatements,” said PCAOB Acting Chairman Daniel Goelzer in a news release.


The PCAOB initially proposed a suite of standards on Oct. 21, 2008. After making changes in response to comments, the PCAOB reproposed the standards on Dec. 17, 2009.


The reproposed document contained seven standards, but the final standards separated planning (AS9) and supervision (AS10). Goelzer said in an official statement to the board that “a separate supervision standard … affords a better platform for future development of the concept of supervision.” He also said the audit planning standard “has been revised to better take into account multi-location engagements in which part of the work is performed by other auditors.” Goelzer’s statement made clear that further standard setting is likely in each area.


The standards supersede six PCAOB interim standards and related amendments: AU section 311, Planning and Supervision; AU section 312, Audit Risk and Materiality in Conducting an Audit; AU section 313, Substantive Tests Prior to the Balance Sheet Date; AU section 319, Consideration of Internal Control in a Financial Statement Audit; AU section 326, Evidential Matter; and AU section 431, Adequacy of Disclosure in Financial Statements.


The following are summaries of the eight standards:


  • AS8, Audit Risk, discusses the auditor’s consideration of audit risk in an audit of financial statements as part of an integrated audit or an audit of financial statements only. It describes the components of audit risk and the auditor’s responsibilities for reducing audit risk to an appropriately low level in order to obtain reasonable assurance that the financial statements are free of material misstatement.
  • AS9, Audit Planning, establishes requirements including assessing matters that are important to the audit, and establishing an appropriate audit strategy and audit plan. 
  • AS10, Supervision of the Audit Engagement , sets forth requirements including supervising the work of engagement team members. It applies to the engagement partner and to other engagement team members who assist the engagement partner with supervision.
  • AS11, Consideration of Materiality in Planning and Performing an Audit, describes the auditor’s responsibilities for consideration of materiality in planning and performing an audit. 
  • AS12, Identifying and Assessing Risks of Material Misstatement, establishes a process that includes information-gathering procedures to identify risks and an analysis of the identified risks. 
  • AS13, The Auditor’s Responses to the Risks of Material Misstatement, establishes requirements for responding to the risks of material misstatement in financial statements through the general conduct of the audit and performing audit procedures regarding significant accounts and disclosures.
  • AS14, Evaluating Audit Results , establishes requirements regarding the auditor’s evaluation of audit results and determination of whether the auditor has obtained sufficient appropriate audit evidence. The evaluation process includes, among other things, evaluation of misstatements identified during the audit; the overall presentation of the financial statements, including disclosures; and the potential for management bias in the financial statements.
  • AS15, Audit Evidence , explains what constitutes audit evidence and establishes requirements for designing and performing audit procedures to obtain sufficient appropriate audit evidence to support the opinion expressed in the auditor’s report.

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