The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) voted to finalize proposed standards to converge with standards issued by the International Auditing and Assurance Standards Board (IAASB) during a meeting on Jan. 17, 2019, according to Ahava Goldman, associate director for audit and attest standards with the Association of International Certified Professional Accountants, a joint venture between the AICPA and the Chartered Institute of Management Accountants.
The ASB’s project follows several changes the IAASB made in 2015 to its standards, including International Standards on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report, to make the auditor’s report more useful to investors.
The final standards will be based on Exposure Draft (ED): Proposed Statements on Auditing Standards: Auditor Reporting and Proposed Amendments ― Addressing Disclosures in the Audit of Financial Statements. The document, issued in November 2017, proposed several changes to the form and content of the auditor’s report.
The AICPA will not require communication of key audit matters (KAMs) for audits of private companies unless the terms of an audit engagement include KAM reporting. KAMs are matters that were communicated with those charged with governance and were found to be the most significant by the auditor. The audit matters are intended to provide investors with more insight about what auditors did while scrutinizing their clients’ financial statements.
The standards will contain some modifications from the exposure draft.
The final version will include a reference in Forming an Opinion and Reporting on Financial Statements to remind auditors that when the audit is conducted using Public Company Accounting Oversight Board (PCAOB) standards and generally accepted auditing standards (GAAS), the auditor should follow the PCAOB standards when determining and reporting critical audit matters (CAMs), rather than the requirements related to KAMs, according to the ASB’s discussion papers.
In June 2017, the PCAOB adopted Auditing Standard (AS) 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, which requires auditors to add a description of CAMs. Similar to KAMs, critical matters are issues that were especially challenging, subjective or complex, and are matters that were or required to be communicated to the audit committee.
The AICPA’s update to the audit reporting standards will also include a description of management’s responsibilities for assessing the company’s ability to continue as a going concern in the auditor’s report only when the applicable financial reporting framework contains such a requirement. The standards will also include a description of the auditor’s responsibilities to conclude on the entity’s ability to stay afloat under AU-C Section 570, “The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern.”
The ASB decided to remove the requirement to describe, in the auditor’s report, management’s responsibility for determining whether the use of the going concern basis of accounting is appropriate and the auditor’s responsibility to conclude on the appropriateness of management’s use of the going concern basis of accounting.
The effective date is expected to be no earlier than for audits of financial statements for periods ending on or after Dec. 15, 2020. Early implementation is not permitted.
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