The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) on June 20, 2019, issued a proposal that would revise the guidance for audit evidence to address various audit issues that have cropped up in a fast-changing business environment.
Comments are due by Sept. 18 on Exposure Draft (ED): Proposed Statement on Auditing Standards (SAS), Audit Evidence.
If finalized, the standard would revise AU-C Section 500, “Audit Evidence.” It would become effective for audits of financial statements for periods beginning on or after June 15, 2021. The board writes standards for audits of private companies.
The ASB about two years ago began this project to better incorporate emerging issues that the current standard issued in 2011 did not contemplate—such as the increased use of sophisticated technology—and sharpen the auditor’s focus on obtaining and evaluating audit evidence. Emerging audit techniques, such as audit data analytics (ADA), artificial intelligence (AI), robotic process automation (RPA) and blockchain offer both challenges and opportunities that affect audits of financial and nonfinancial information, the exposure document says.
“Given the rapid evolution of audit evidence sources that are available today, it is critically important that auditors have a robust, durable set of attributes that allows them to make consistent assessments about the sufficiency and appropriateness of audit evidence obtained,” AICPA Chief Auditor Robert Dohrer said in a statement. “This proposed SAS modernizes our standards to recognize the sources of information and the technologies that were not available to auditors when the standard was last updated.”
Currently, AU-C Section 500 focuses on the design and performance of audit procedures to obtain sufficient and appropriate audit evidence.
“Rather than continuing the current model, the ASB is proposing to expand the focus of the proposed SAS to be primarily focused on understanding the attributes and factors to consider in assessing whether sufficient appropriate audit evidence has been obtained notwithstanding the audit procedures performed to obtain the audit evidence,” the exposure draft states. “This change in focus of the proposed SAS is intended to be accomplished by establishing attributes and factors to consider in evaluating such audit evidence.”
The proposed standard would add new requirements and application material that address each of the attributes and factors that affect audit evidence. The standard would contain an overarching principle that requires the auditor to evaluate the information to be used as audit evidence as a basis for concluding whether “sufficient appropriate” audit evidence has been obtained. This overarching requirement is followed by separate requirements for the auditor to consider the individual attributes and factors of audit evidence: its relevance and reliability, its sources and whether the information corroborates or contradicts the assertions in the financial statements, the exposure draft says.
The ASB included several examples in the proposal to illustrate the use of technology in the application material.
“The intent of these additional examples is to illustrate how automated tools and techniques may be used by the auditor and, thereby, recognize more prominently in the proposed SAS the increased use of automated tools and techniques,” the exposure draft states.
The audit standard setter said automated software and techniques such as AI, machine learning and RPA, whether used by management or the auditor, are being considered in other projects related to risk assessment and firm’s quality control. Currently, AU-C Section 500 defines sufficiency in terms of quantity and appropriateness in a qualitative way.
“The ASB believes that audit evidence always has to first be appropriate for the auditor’s intended purposes; the key question, then, is whether the auditor has obtained enough of such audit evidence for the auditor’s intended purpose,” the exposure draft says. “In the proposed SAS, the ASB retained separate definitions of sufficiency and appropriateness.”
While it retained the definition of appropriateness largely as is, the ASB is proposing to amend the definition of sufficiency to focus on the measure of the persuasiveness of audit evidence rather than emphasizing the quantity of audit evidence. “The ASB believes that this change is important because, with the array of automated tools and techniques available to the auditor in today’s environment and the different nature and sources of information available, the quantity of audit evidence, in itself, may not be determinative of its sufficiency.”
The proposal also deals with the application of professional skepticism, among other things.
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