New audit standards

By Michael Manspeaker, CPA
Smith Elliott Kearns & Company, LLC

The Auditing Standards Board (ASB) has approved the issuance of two new Statements on Auditing Standards. SAS No. 95 is titled Generally Accepted Auditing Standards and supersedes section AU §150 of the Codification of Statements on Auditing Standards. SAS No. 96, Audit Documentation, supersedes section AU §339 of the Codification and amends several Statements on Auditing Standards.

Generally accepted auditing standards

SAS No. 95 places auditing guidance into three categories: Auditing Standards, Interpretive Publications and Other Auditing Publications. A description of the categories and their level of authority follows:

Auditing standards include the general, field work and reporting standards (the 10 standards) and the Statements on Auditing Standards (SAS). An auditor should have sufficient knowledge of the Auditing Standards and be prepared to justify departures from the SASs.
Interpretive publications include Auditing Interpretations of the SASs, AICPA Auditing Statements of Position and the auditing guidance in AICPA Audit and Accounting Guides. Such guidance is issued under the authority of the ASB to provide recommendations on the application of SASs in specific circumstances. If an auditor does not apply the guidance included in an interpretive publication, they should be prepared to explain how they complied with the applicable SASs.
Other auditing publications include all other auditing literature and, while they may be helpful, have no authoritative status. If an auditor uses such guidance, he or she should be satisfied that it is both relevant and appropriate guidance. Certain other auditing publications issued by the AICPA are reviewed by the AICPA Audit and Attest Standards staff and are therefore considered to be appropriate. As a result of SAS No. 95, an appendix is being added to the Codification of Statements on Auditing Standards to list these publications. It is expected that this appendix will be helpful to auditors as a means of identifying useful auditing information. SAS No. 95 is effective for audits of financial statements for periods beginning on or after December 15, 2001.

Audit documentation

SAS No. 96, Audit Documentation, establishes standards for the content of audit documentation. Audit documentation can be on paper, electronic or other media. The SAS states, "Audit documentation should be sufficient to (a) enable members of the engagement team with supervision and review responsibilities to understand the nature, timing, extent, and results of auditing procedures performed, and the evidence obtained, (b) indicate the engagement team member(s) who performed and reviewed the work, and (c) show that the accounting records agree or reconcile with the financial statements or other information being reported on."

Factors to consider in determining the nature and extent of documentation for a particular audit area include the risk of material misstatement, judgment involved, nature of the auditing procedure, significance of the evidence, nature and extent of exceptions and the need to document a conclusion. Audit documentation that involves inspection of documents or confirmation procedures should include an identification of the items tested.

Audit documentation should also include audit findings or issues that the auditor considers to be significant, the actions taken to address them and the basis for final conclusions reached. SAS No. 96 also amends several previous SASs as follows:

The auditor should document the nature and effect of aggregated misstatements and the conclusion as to whether they cause the financial statements to be materially misstated.
For analytical procedures used as a principal substantive test, the expectation and the factors used to develop it, results of the comparison to the expectation and any additional audit procedures performed in response to significant unexpected differences should be documented.
The auditor should document the conditions or events that led to a substantial doubt about the entity's ability to continue as a going concern, the auditor's evaluation of management's plans, the auditor's conclusion about whether substantial doubt remains or is alleviated and the consideration and effect on the financial statements, disclosures and audit report.

SAS No. 96 will be effective for audits of financial statements for periods beginning on or after May 15, 2002.

The ASB also approved the issuance of Statement on Standards for Attestation Engagements No. 11, Attest Documentation, which conforms the documentation requirements in the attestation standards to those included in SAS No. 96.

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