Implementing the New Asb Risk Assessment Audit Standards

Summary

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The Auditing Standards Board (ASB) issued its long-anticipated risk assessment audit standards in March 2006: Statements on Auditing Standards (SAS) 104 through 111, which bring sweeping changes and provide definitive guidance for the conduct of audits of nonpublic companies. This article is an overview of the new risk assessment standards, focusing on the new provisions of SAS 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, and SAS 110, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained. The new standards bring myriad changes in terminology, materiality considerations, evidence concepts, the audit assertions framework, and audit planning issues. The new auditing standards encourage testing of controls by eliminating the ability to arbitrarily default to maximum control risk and avoid documenting that decision. When an auditor obtains evidence contradicting the basis for the risk assessment, the auditor should revise the assessment and further modify planned audit procedures.

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Implementing the New Asb Risk Assessment Audit Standards

The Auditing Standards Board (ASB) issued its long-anticipated risk assessment audit standards in March 2006: Statements on Auditing Standards (SAS) 104 through 111, which bring sweeping changes and provide definitive guidance for the conduct of audits of nonpublic companies. The primary objective of these standards is to enhance auditors' application of the audit risk model by requiring auditors to obtain a more in-depth understanding of a company in order to better identify risks of material misstatement of financial statements. This, in turn, should lead to an improved linkage between assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks. These standards are effective for periods beginning on or after December 15, 2006 (earlier application is permitted), to allow auditors adequate lead time to revise their audit strategies, where necessary, and to assimilate the breadth and magnitude of these new standards.

The following is an overview of the new risk assessment standards, focusing on the new provisions of SAS 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, and SAS 110, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained.

Overview of the New Provisions

The new standards bring myriad changes in terminology, materiality considerations, evidence concepts, the audit assertions framework, and audit planning issues. Even the focus of the audit process has changed, based upon revisions to the second standard of fieldwork. The following are some of the more signifi...

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