Auditing

The AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) no. 114, The Auditor’s Communication With Those Charged With Governance, which supersedes SAS no. 61, Communication With Audit Committees, as amended. The new SAS establishes standards and provides guidance to auditors of nonissuer financial statements on matters to be communicated to those charged with governance. Among other things, SAS no. 114 requires such communications to provide an overview of the planned scope and timing of an audit and significant findings from it. The statement also encourages auditors to use professional judgment in deciding to whom, among those charged with governance, they should communicate particular matters and requires them to evaluate the adequacy of that communication.

SAS no. 114 is effective for periods beginning on or after December 15, 2006. It is summarized at http://tinyurl.com/y4pzvp and can be ordered (product no. 060709) at www.cpa2biz.com .

The AICPA staff has developed an audit risk alert to aid auditors in applying SAS no. 112, Communicating Internal Control Related Matters Identified in an Audit. The alert, titled Understanding SAS no. 112 and Evaluating Control Deficiencies, clarifies that asking an auditor to draft financial statements does not cause a control deficiency, although it may be the result of one. It also explains differences between SAS no. 112 and SAS no. 60 and provides case studies of control deficiencies. The alert is available in printed and electronic form at www.cpa2biz.com/stores/sas112 .

The AICPA Accounting and Review Services Committee (ARSC) issued an exposure draft of a Statement on Standards for Accounting and Review Services (SSARS), Elimination of Certain References to Statements on Auditing Standards and Incorporation of Appropriate Guidance Into Statements on Standards for Accounting and Review Services. The ARSC determined it would be in the best interest of practitioners performing compilations and reviews to eliminate certain references to the auditing literature from the SSARSs and, instead, incorporate the concepts into the SSARSs themselves. The proposed statement would be effective for compilations and reviews of financial statements for periods ending on or after December 15, 2007. E-mail comments to Michael Glynn at mglynn@aicpa.org by May 18. To download the document, visit http://www.aicpa.org/download/members/div/auditstd/ED_SSARS.pdf .

The International Auditing and Assurance Standards Board issued three exposure drafts of proposed international standards on auditing (ISAs) that follow new drafting conventions designed to enhance the clarity of its pronouncements. The key elements include basing the standards on objectives, rather than procedural considerations; using the word shall to identify requirements accountants are expected to follow in most engagements; eliminating the present tense to describe accountants’ actions; and making structural improvements to enhance the standards’ readability and understandability.

The proposed standards are as follows:

• ISA 320 (Revised and Redrafted), Materiality in Planning and Performing an Audit.

• ISA 450 (Redrafted), Evaluation of Misstatements Identified During the Audit.

• ISA 260 (Revised and Redrafted), Communication With Those Charged With Governance.

Comments are due by February 15 and should be limited to the application of the new drafting conventions. The EDs are available at www.ifac.org/EDs .