In an effort to make US generally accepted auditing standards (GAAS) easier to read, understand, and apply, the Auditing Standards Board (ASB) undertook an effort to redraft all of the auditing sections in the Codification of Statements on Auditing Standards. This is also known as the Clarity Project. The ASB established drafting conventions and, among other improvements, the new standards more clearly specify the objectives of the auditor and the requirements with which the auditor has to comply when conducting an audit in accordance with GAAS.
One of the most significant outcomes of the Clarity Project was the establishment of AU-C section 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors), often called Group Audits for short. AU-C section 600 is significantly broader in scope than the previous standard, which primarily focused on the involvement of "other" auditors. It establishes new terms such as "group" and "component." A group includes all the components whose financial information is included in the group financial statements. A component is an entity or business activity that is required to be included in the group financial statements. Examples include component units, departments with separate financial reporting systems, and joint ventures with an equity interest. A Group Audit can apply whether or not auditors are from different firms, different offices, or different teams within the same firm, or even if it is the same team performing the audits of the group and all components.
We believe two changes will have the most significant impact on audits that fall under this standard, especially those where the group financial statement and component financial statements are audited by different firms. They include:
These changes go into effect for years ending after December 15, 2012. While many audit procedures will be similar to those performed in the past, management and those charged with governance will likely see some new communications and procedures if your government falls under the new Group Audit standard.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.