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AICPA ISSUES NEW RISK ASSESSMENT AUDITING STANDARDS

The Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) has approved eight new Statements on Auditing Standards (SASs) - collectively referred to as the Risk Assessment Standards.

The new standards will be available on or about March 8, 2006. They may be purchased through the AICPA Store at www.cpa2biz.com/risk.

The new statements, SAS No. 104 through SAS No. 111, will be effective for audits of financial statements for periods beginning on or after December 15, 2006. Early adoption is permitted. A summary of the new standards has been posted on the AICPA Web site.

Collectively, the Risk Assessment Standards establish standards and provide guidance concerning the auditor’s assessment of the risks of material misstatement (whether caused by fraud or error) in a non-issuer financial statement audit; design and performance of tailored audit procedures to address assessed risks; audit risk and materiality; planning and supervision; and audit evidence.

In developing the Risk Assessment Standards, the ASB, which sets auditing standards for audits of privately held businesses and other “non-issuer” entities, had three objectives:

• a more in-depth understanding of the audited entity and its environment, including its internal control;
• a more rigorous assessment of the risks of where and how the financial statements could be materially misstated;
• improved linkage between the auditor’s assessed risks and the nature, timing and extent of audit procedures performed in response to those risks.

"The standards will result in more effective audits as a result of better risk assessments and improved design and performance of audit procedures to respond to the risks," said John Fogarty, Chairman of the Auditing Standards Board. "These standards will better help auditors focus on those areas where risk of misstatement is the greatest."

"These standards, along with our standard on fraud, get to the very heart of the audit process." said Chuck Landes, AICPA Vice President, Professional Standards and Services. "Implementation of the new standards may require auditors to change their approach and perhaps the nature of the audit procedures performed. We believe that these standards, with support from the AICPA, will allow our members to find ways to improve the effectiveness of their audit engagements."

The AICPA has put together a comprehensive plan to support and assist members in implementing the new standards:

• An audit risk alert, which will be available in March
• Presentations and discussions at a number of AICPA conferences between now and December 15, 2006, the effective date of the standards
• Two self-study CPE programs, to be released this summer
• An audit guide, including case studies, due out in the fall

The American Institute of Certified Public Accountants (http://www.aicpa.org/) is the national, professional association of CPAs, with approximately 350,000 members, including CPAs in business and industry, public practice, government, and education; student affiliates; and international associates. It sets ethical standards for the profession and U.S. auditing standards for audits of private companies; federal, state and local governments; and non-profit organizations. It also develops and grades the Uniform CPA Examination.

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American Institute of Certified Public Accountants
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Media Contact:
Tom Lemmon
(212) 596-6122
tlemmon@aicpa.org