The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) is scheduled to vote on a revised definition of materiality in its professional standards during a meeting on Oct. 28 to 31, 2019, in New York.
The ASB will also vote to finalize changes to its attestation standards intended to give accountants more flexibility when performing certain limited assurance procedures.
The AICPA, which currently uses a definition of materiality that is set by international standard-setters, proposed in June 2019 to align it with the concept of materiality that is used in the United States in Exposure Draft (ED): Proposed Statement on Auditing Standards: Amendments to the Description of the Concept of Materiality.
The concept of materiality is used to determine what is important enough to be included and what can be omitted from a financial statement.
The ASB said eliminating inconsistencies will promote public interest. The primary difference between the U.S. and international definition is whether a misstatement “would influence the judgment of a reasonable investor” or “could reasonably be expected to influence the decisions of users.”
Big Four accounting firms in comment letters said that they support the AICPA’s effort and only asked for some minor clarifications before finalizing the change.
On attestation standards, the board in July 2018 published ED: Proposed Statement on Standards for Attestation Engagements, Revisions to Statement on Standards for Attestation Engagements No. 18: Clarification and Recodification, which proposed to supersede AT-C Section 105, “Concepts Common to All Attestation Engagements,” AT-C Section 205, “Examination Engagements,” AT-C Section 210, “Review Engagements,” and AT-C Section 215, “Agreed-Upon Procedures Engagements.”
But at its last meeting in July, the ASB focused on first completing revisions specific to AUPs. The board will address remaining items—AT-C Sections 205 and 210 —at future meetings.
Most significantly, the revised standard will allow an accountant to report on the subject matter—which is the information that a financial professional or accountant has to measure or evaluate—without obtaining a written assertion that the subject matter complies with an underlying criterion, such as a law or regulation, from the party that is responsible for the subject matter.
The exposure draft said the attestation standard can be applied to many types of subject matter, such as a statement about greenhouse gas emissions or the effectiveness of the controls for the security of a system.
With some engagements, the responsible party may be the client, but for other engagements the responsible party is essentially the person or group that provides the accountant with a written assertion about the subject matter.
The ASB said it is necessary to give accountants flexibility when examining or reviewing certain documents if clients cannot appropriately measure or evaluate them. In some cases, the responsible party for the subject matter may not be readily identifiable. AT-C Section 215 would be revised so it would no longer require that all the parties to the engagement and users of the AUP report agree to the procedures to be performed and take responsibility for their sufficiency. Instead, the revision would require that the engaging party acknowledge the appropriateness of the procedures for the intended purpose of the engagement and explicitly allow the accountants to develop the procedures.
Before holding a vote, the ASB is expected to iron out a few remaining issues regarding AUPs, according to a discussion paper prepared ahead of the meeting.
At its last meeting in July 2019, the ASB agreed with a task force’s recommendation that other specified parties be added after the release of the AUP reports.
The proposed requirements would be different from current rules related to adding non-participating parties. AT-C Section 215 does not require specified parties to be identified. They also do not need to acknowledge their responsibility for the sufficiency of the procedures at the start of the engagement.
“A significant difference between the proposed requirements regarding adding other specified parties after the release of the practitioner’s report and the extant requirements regarding adding nonparticipant parties is that extant AT-C section 215 does not require that the practitioner’s report be reissued,” the paper said. “However, proposed revised AT-C section 215 does require that the practitioner amend the practitioner’s report as the purpose for adding specified parties would be to name them in the report.”
If other specified parties are added after the release of the AUP report, the CPA should amend the AUP report to add the other parties. The CPA should not change the date of the report and must provide a written acknowledgement to the engaging party and the other parties that others have been added as specified parties. Moreover, the CPA should state that no procedures were performed subsequent to the original date of the AUP report.
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