Week 6 Assignment
1. What efforts is the Auditing Standards Board making to clarify auditing standards?
There are efforts on the United States side to clarify the auditing standards. The Auditing Standard Boards [of the United States], which sets auditing standards for nonpublicly traded entities, has launched the Clarity Project in an effort to make U.S. Generally Accepted Audited Standards (GAAS) easier to read, understand, and apply. The Clarity Project includes the goal of working toward convergence of U.S. auditing standards with International Standards on Auditing (ISA). This convergence project is attempting to make auditing standards coordinated or comparable ...view middle of the document...
For example, PCAOB Auditing Standards 3 requires that “an engagement memo” be prepared. There is no requirement likes this under ISA. Retention periods of auditing workpapers also differ. The ASB requires that audit workpapers be retained for a period of at least 5 years, while the PCAOB mandates a retention period of at least 7 years. ISA 230, Audit Documentation, requires audit firms to establish policies and procedures for the retention period for audit engagements documentation. The retention period for audit engagements ordinarily is no shorter than 5 years from the date of the auditor’s report, or if later, the date of the group auditor’s report.
The second key difference refers to going concern considerations. Going concern consideration is determining whether an entity has the ability to continue in the foreseeable future. The PCAOB auditing standards define forseeable future as 12 months following the end of the fiscal period being audited. The ISAs considers the foreseeable future is at least, but not limited to 12 months. At the moment, the Clarity Project is still being worked on, thus, there may be revisions to this guidance in the future.
The third key difference is regarding the internal control over financial reporting. Neither the auditing standards issued by the ASB nor ISAs require an integrated audit that expresses an opinion on the effectiveness of the client’s internal controls over financial reporting . However, auditors following the U.S. auditing standards must obtain an understanding of the internal controls of the entity being audited in order to plan and perform the audit, including determining the nature, extent, and timing of substantive tests to be performed.
The fourth key difference is regarding the risk assessment. ISAs require specific risk assessment procedures in order to...