SEC Approves PCAOB Auditing Standard No. Regarding Audits of Internal Control Over Financial Reporting; Adopts Definition of . Commission has strengthened investor protection by refocusing resources on what truly matters to the integrity of financial statements. An Audit of Internal Control Over Financial Reporting That is Integrated With An Audit of Financial Statements (Auditing Standard No. File No. 5 will replace PCAOB Auditing Standard No. An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (Auditing Standard No. 71 isa 200 auditing international standard on auditing 200 overall objectives of the independent auditor and the conduct of an au dit in accordance with. The mandatory requirements (i. Auditing Standard No. That means the auditor can focus on performing tests in those areas where, in the auditor's judgment, it's actually necessary. The International Auditing and Assurance Standards Board (IAASB) is an independent standard-setting body that serves the public interest by setting high-quality. The following auditing standard reflects references to standards before their reorganization. The reorganized auditing standard is available here. Management and audit committees now can engage in a more meaningful dialogue with their auditors to ensure that auditors are focused on what matters - risk and materiality - and not on rote compliance with a rulebook. Auditing Standard No. Auditing Standard No. There are notes throughout the new standard explaining how to apply the principles to smaller or less complex companies. Under the new standard, companies' control systems won't have to be designed to fit the audit standard, but rather to achieve the intended objective of improving the quality of financial statements.
For example, the standard explains that for audits of smaller and less complex companies, the auditor can appropriately reduce the amount of internal control testing. The auditor can consider alternative controls - for example, if management's ability to segregate duties is limited; and the auditor can also use inquiry, combined with other procedures such as observation or reperformance - for example, when the operation of controls by management results in limited or no documentation trail. It directs auditors to those areas that present the highest risk, such as the financial statement close process and controls designed to prevent fraud by management. It emphasizes that the auditor is not required to scope the audit to find deficiencies that don't constitute material weaknesses. It also allows auditors to use knowledge accumulated in previous years' audits to reduce testing. Auditing Standard No. The new standard clarifies that management's process is not the focus of the audit. As a result, it will eliminate auditors requiring companies to do work that isn't necessary. Finally, Auditing Standard No. A principles- based approach allows auditors to apply professional judgment in determining the extent to which they'll use the work of others. The new standard itself expressly permits auditors to use, in the internal control audit, testing and other internal control work performed by persons other than internal auditors. This principles- based approach is in fact based on the auditor's consideration of the objectivity and competence of those performing the work. These two factors are the most important considerations in the auditor's determination of when and to what extent the auditor can use the work of others. Commission has replaced the current inefficient system of 4. Commission laid out just over a year ago for improving the rules and guidance implementing Section 4. PCAOB Rule 3. 52. Conforming Amendments will be effective and required for integrated audits conducted for fiscal years ending on or after Nov. Commission will begin accepting the single auditor's attestation report on the effectiveness of internal control over financial reporting prescribed in Auditing Standard No. The Commission also adopted a definition of significant deficiency to define this term as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant's financial reporting.
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