- New standards issued by the International Auditing and Assurance Standards Board (IAASB) are designed to change how auditors communicate about their work in their reports.
Auditors of listed entities’ financial statements will be required to communicate “key audit matters” in auditor’s reports, according to the standards, available at tinyurl.com/lry4m74. The key audit matters will be those that the auditor views as most significant, with an explanation of how they were addressed in the audit.
The IAASB also has increased auditors’ focus on going-concern matters and added more transparency in the auditor’s report about the work the auditor performs.
The new standards will be effective for audits of financial statements for periods ending on or after Dec. 15, 2016.
- The AICPA Auditing Standards Board (ASB) issued four auditing interpretations to address some of the effects of accounting standards on going concern.
FASB in August issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The standard establishes management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.
Going-concern responsibilities for state and local government preparers, meanwhile, were incorporated into GASB’s standards in 2009 with the issuance of GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards.
The new auditing interpretations to Statement on Auditing Standards No. 126, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted) (AICPA, Professional Standards, AU-C Section 570), are the result of a short-term initiative by the ASB to address some of the effects of these accounting standards.
The interpretations, available at tinyurl.com/n5k3366, address:
- The definition of “substantial doubt about an entity’s ability to continue as a going concern.”
- The definition of reasonable period of time.
- Interim financial information.
- Consideration of financial statements’ effects.
The ASB expects to undertake a more comprehensive project in the longer term to align AU-C Section 570 with the various accounting and auditing standards.
- The PCAOB issued a reminder to auditors of brokers and dealers that the board’s new auditing standards differ in certain respects from previous generally accepted auditing standards that applied to these audits.
PCAOB standards took effect for audits of broker-dealer annual reports for fiscal years ended on or after June 1, 2014.
In its report, available at tinyurl.com/pyksz6k, the PCAOB said the first five inspections of broker-dealer audits conducted under the new standards showed deficiencies in the auditors’ application of the standards.
The PCAOB advised that auditors who desire clarification of the standards can email the PCAOB at email@example.com or review the board’s staff guidance on the issue, available at tinyurl.com/n2e3snl, which was published in June.