ASB Issues Three Exposure Drafts

The AICPA Auditing Standards Board has issued three new proposed statements on auditing standards:

• Related Parties (Redrafted)
• Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures (Redrafted)
• Audits of Group Financial Statements (Including the Work of Component Auditors)
  Proposed Statement on Auditing Standards, Related Parties (Redrafted)

Proposed Statement on Auditing Standards, Related Parties (Redrafted)

The Proposed Statement on Auditing Standards, Related Parties (Redrafted) is one of the SASs being redrafted under the ASB’s Clarity Project. It is also part of the ASB’s project converging SASs with International Standards on Auditing (ISAs). It has been drafted using ISA 550, Related Parties, as a base. It would supersede the “Related Parties” section of SAS No. 45, Omnibus Statement on Auditing Standards—1983 (AICPA, Professional Standards, vol. 1, AU sec. 334). It also represents the redrafting of the “Related Parties” section of SAS No. 45.

Issued September 11, 2009, the comment period ends December 15, 2009. It would be effective for would be effective for audits of financial statements for periods beginning on or after December 15, 2010. This effective date is provisional but will not be earlier than December 15, 2010.

Changes From Existing Standards

Since this proposed SAS is a redrafting of an existing SAS you should be aware that there are changes to existing standards. The current AU section 334 is based on the related party requirements in FAS No. 57, Related Party Disclosures, so it’s focus is on auditing the amounts and disclosures pursuant to accounting principles generally accepted in the United States.

The proposed SAS is framework neutral, so the proposed SAS would include financial reporting frameworks, such as U.S. GAAP and International Financial Reporting Standards as promulgated by the International Accounting Standards Board, as well as special purpose frameworks described in the proposed SAS Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks. The applicability of the objectives, requirements, and definitions in the proposed SAS are irrespective of whether the framework establishes such requirements.

Proposed Statement on Auditing Standards, Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures (Redrafted)

Supersedes SAS No. 57, Auditing Accounting Estimates and Auditing Fair Value Measurements and Disclosures and SAS No. 101, Auditing Fair Value Measurements and Disclosures (AICPA, Professional Standards, vol. 1, AU sec. 342 and 328). It represents the redrafting of SAS Nos. 57 and 101 to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

Issued September 4, 2009 with a comment period ending November 30, 2009, the proposed SAS would be effective for audits of financial statements for periods beginning on or after December 15, 2010. This effective date is provisional but will not be earlier than December 15, 2010.

Changes From Existing Standards

The proposed SAS does not change or expand SAS No. 57 or SAS No. 101 in any significant respect.

Proposed Statement on Auditing Standards, Audits of Group Financial Statements (Including the Work of Component Auditors)

This proposed SAS has been drafted using ISA 600 as a base. ISA 600 addresses group audits. A group audit is defined as an audit of group financial statements. Group financial statements are financial statements with more than one component, which is defined as an entity or business activity for which management prepares financial information that should be included in the group financial statements.

There is a difference in the proposed SAS and ISA 600. ISA 600 does not permit the auditor’s report on the group financial statements to make reference to another independent auditor (referred to as a component auditor), unless required by law or regulation to include such reference. The proposed SAS, consistent with the current AU section 543, permits the auditor’s report to make reference to a component auditor.

Issued September 4, 2009 with a comment period ending December 15, 2009 the proposed SAS would be effective for audits of financial statements for periods beginning on or after December 15, 2010. This effective date is provisional but will not be earlier than December 15, 2010.

Comparison of AU Section 543 and the Proposed SAS

The proposed SAS is broader than AU section 543. The proposed SAS lists the procedures necessary for the group engagement team to perform in order to be involved with component auditors to the extent necessary for an effective audit and, compared with extant AU section 543, better explains the degree of involvement required when reference is made to component auditors in the auditor’s report.

The requirements of the proposed SAS concern:

• Acceptance and continuance considerations
• The group engagement team’s process to assess risk
• The determination of materiality to be used to audit the group financial statements
• The determination of materiality to be used to audit components
• The selection of components and account balances for audit testing
• Communications between the group engagement team and component auditors
• Assessing the adequacy and appropriateness of audit evidence by the group engagement team in forming an opinion on the financial statements.

In situations when the group engagement partner does not make reference to a component auditor in the audit report on the group financial statements, all of the requirements of the proposed SAS apply, when relevant in the context of the specific group audit engagement.

The exposure drafts may be downloaded at http://www.aicpa.org/.

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