Proposal aims to enhance auditors’ risk assessment process

By Ken Tysiac

The AICPA Auditing Standards Board (ASB) issued a proposed standard Thursday that is designed to enhance auditors' assessment of the risks of material misstatement in an audit of financial statements.

Proposed Statement on Auditing Standards (SAS), Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, would supersede SAS No. 122, as amended, Section 315 of the same title, and amend various AU-C sections in AICPA Professional Standards.

The proposed standard is based on International Standard on Auditing 315, Identifying and Assessing the Risks of Material Misstatement. The proposed standard is designed to enhance the requirements and guidance on identifying and assessing the risks of material misstatement, particularly guidance that addresses the entity's system of internal control. The proposed standard also modernizes the current standard by including extensive new guidance on information technology.

In addition, the proposed standard would revise the definition of significant risks. The current definition focuses on risks that require special audit considerations. The proposed revised definition would indicate that those risks lie on the upper end of the spectrum of inherent risks. The proposed standard also includes new guidance intended to enhance the auditor's application of professional skepticism in performing risk assessment procedures.

"The way business is conducted and the manner in which entities record, process, and summarize financial information has evolved rapidly," AICPA Chief Auditor Bob Dohrer, CPA, CGMA, said in a news release. "This evolution affects the auditor's assessment of the risks of material misstatement. This proposed SAS, which reflects this ongoing transformation, improves audit quality by enhancing the auditor's process for identifying and responding to the risks of material misstatement in an entity's financial statements."

Feedback on the proposal can be submitted to the ASB at by Nov. 25.

Ken Tysiac ( is the JofA's editorial director.

Where to find October’s flipbook issue

The Journal of Accountancy is now completely digital. 





2022 Payroll Update

Employees working remotely have created numerous issues for employers. The 2022 Payroll Update report provides insight on remote workforce tax issues, pandemic payroll issues and employer credits, and worker classification issues in the gig economy.