2018 ASB Update January 24, 2018

Transcription

1 2018 ASB Update January 24, 2018 Jerry E. Durham, CPA, CGFM, CFE New Addition to Professional Code of Conduct Independence 1

2 Session Objectives Recently issued standards and guidance ASB active agenda The thoughts and opinions expressed in this presentation are my own. They do not necessarily represent the views of the Auditing Standards Board. Slide 3 Standards Setters: AICPA/ASB = Generally Accepted Auditing Standards = GAAS GAO = Government Auditing Standards = Yellow Book = GAGAS OMB? = Single Audit Guidance = A-133/New Uniform Gudiance 4 4 2

3 Standards Setters (cont d): IFAC/IAASB (International Auditing and Assurance Standards Board) = International Audit Standards = ISAs?? PCAOB/SEC = Standards for Publicly Traded Companies = AS?? States may prescribe additional standards. 5 5 Why have Auditing Standards? What about light bulbs? What about cell phone chargers? What if auditors could perform audits any way they wanted to? Many auditing standards are driven by audit failures. Following standards can become a crutch that causes auditors not to think. It is all about Credibility! 6 6 3

4 Yellow Book Revision Update Basically the same chapters Independence won t change much in general but will be combined with ethics. Will have a different look. Some changes to CPE requirements. Some changes to Performance Audit Standards. West Virginia State Auditor s Office Jerry E. Durham, CPA, CGFM, CFE May 15-16,

5 Overall Changes Chapters From 7 to 9 Chapters Reorganized and Realigned All Chapters Revised Format Supplemental Appendix Guidance Removed or Incorporated into Chapters No effective date announced 5

6 ED Chapter Comparison Old Yellow Book 1. Government Auditing: Foundation and Ethical Principles 2. Standards for Use and Application of GAGAS 3. General Standards 4. Standards for Financial Audits ED - New Yellow Book 1. Government Auditing: Foundation and Principles for the Use and Application of Generally Accepted Auditing Standards 2. General Requirements for Complying with Government Auditing Standards 3. Ethics, Independence, and Professional Judgment 4. Competence and Continuing Professional Education ED Chapter Comparison Old Yellow Book 5. Standards for Attestation Engagements 6. Field Work Standards for Performance Audits 7. Reporting Standards for Performance Audits ED - New Yellow Book 5. Quality Control and Peer Review 6. Standards for Financial Audits 7. Standards for Attestation Engagements and Reviews of Financial Statements 8. Fieldwork Standards for Performance Audits 9. Reporting Standards for Performance Audits 6

7 Chapter 1 Government Auditing: Foundation and Principles for the Use and Application of Generally Accepted Government Auditing Standards Examples of types of GAGAS users are addressed. (para. 1.12) Integrated audit is added to the types of financial audits. (para b) Descriptions of attestation engagements, reviews of financial statements, and performance audits are expanded. (paras through 1.21) Definitions of common terms used in GAGAS are expanded. Definitions for terms such as engaging party, audited entity, responsible party, and specialist are added. (para. 1.23) Chapter 2 - General Requirements for Complying with Government Auditing Standards Guidance is expanded to explain that for financial audits, attestation engagements, and reviews of financial statements, GAGAS does not incorporate the American Institute of Certified Public Accountants Code of Conduct by reference but recognizes that certain certified public accountants (CPA) may use or may be required to use the code in conjunction with GAGAS. (para. 2.13) 7

8 Chapter 3 Ethics, Independence, and Professional Judgment The independence requirements of the auditor when the engaging party differs from the responsible party are further explained and examples of when this could occur are provided. (para. 3.24) Independence requirements do not extend to the relationship with the engaging party Guidance is added to address situations in which government auditors work in conditions that do not permit independence. A modified GAGAS compliance statement may be applicable in such cases. (para. 3.25) Standard is expanded to require that, as part of applying the conceptual framework, auditors reevaluate threats to independence whenever the audit organization becomes aware of new information or changes in facts and circumstances. (para. 3.29) Good examples of appendix information being included in the narrative (threat examples) Guidance related to professional services in government is further explained and examples of when this could occur are provided. (para. 3.80) This includes investigations of potential fraud. This professional service does not create a management participation threat Chapter 3 Ethics, Independence, and Professional Judgment Standard is expanded to state that any services performed by auditors related to preparing accounting records and financial statements, other than those defined as impairments to independence in paragraph 3.88, create significant threats to auditors independence, and auditors should document the threats and safeguards applied to eliminate and reduce threats to an acceptable level or decline to perform the service. (para. 3.89) In my opinion, this may be the most important change for auditors of local governments The conceptual framework flowchart has a new look and is included at the end of Chapter 3 rather than in the Appendix 8

9 Old Conceptual Framework New Conceptual Framework 9

10 Chapter 4 Competence and Continuing Professional Education Standard is revised to require that management assign auditors to conduct an engagement who possess the competence needed for their assigned roles at the time of their assignment. (para. 4.03) The same thought is repeated for the collective competence of the audit team The concept of competence is discussed further in application guidance, including the following: The levels of GAGAS proficiency expected for different roles on an engagement. (paras through 4.10) Entry level; Supervisory; and Partners and Directors The competence of specialists. (paras through 4.14) The requirements for continuing professional education (CPE) are revised to promote greater proficiency in GAGAS. This includes the following: Introducing a new 4-hour requirement in GAGAS topics, to be required each time a new version of GAGAS is issued. (paras through 4.17) Providing application guidance concerning the topics required by the 80-hour GAGAS CPE requirements. (paras through 4.25) Detailing exemptions that may be granted to auditors in certain circumstances. (paras through 4.30) Elements of the GAGAS guidance on CPE are incorporated into the exposure draft in order to address common questions on CPE. (various paragraphs from paras through 4.50) Chapter 5: Quality Control and Peer Review (25 paragraphs to 113 paragraphs) Standard is modified to require that audit organizations at least annually obtain written affirmation of compliance with policies and procedures on independence from all audit organization personnel required to be independent. (para. 5.09) Standard is expanded to require that audit organizations establish policies and procedures designed to provide reasonable assurance that the audit organization undertake engagements only if it has the capabilities to do so. (para. 5.12) Requirements are added and guidance is provided for engagement performance, documentation, and reporting, including requirements for policies and procedures pertaining to the review and supervision of engagement work performed by the engagement team. (paras through 5.41) 10

11 In particular, the following are discussed: The policies and procedures should require that experienced engagement team members review the work of less experienced engagement team members. The audit organization should assign responsibility for each engagement to an engagement team partner or director with authority to assume that responsibility. The audit organization should establish policies and procedures requiring the audit organization to communicate the identity and role of the engagement partner or director to management and those charged with governance of the audited entity. The audit organization should establish policies and procedures requiring the audit organization to clearly define the responsibilities of the engagement partner or director and communicate them to that individual. The audit organization should establish policies and procedures designed to provide reasonable assurance that appropriate consultation takes place on contentious issues, sufficient resources are available to enable appropriate consultation, the nature and scope of such consultations are documented and agreed upon, and the conclusions resulting from such consultations are documented and implemented. For terminated engagements, auditors should document the results of the work to the date of termination and why the engagement was terminated if an engagement is terminated before it is completed and an audit report is not issued. Standard is modified to require that audit organizations affiliated with a recognized organization comply with the respective organization s peer review requirements and additional GAGAS peer review requirements. (para. 5.64) Standard is modified for audit organizations not affiliated with recognized organizations (para. 5.65) as follows: Peer review scope is expanded to include review of documentation of terminated engagements, if a terminated engagement is selected from the universe of engagements used for the peer review sample. (para. 5.80) Peer review scope is expanded to include a review of prior peer review reports, if applicable. (para. 5.80) For subsequent peer reviews, the audit organization should obtain a peer review report dated not later than 3 years and 6 months from the year-end of the previous peer review. (para. 5.82) 11

12 Peer reviews should include a written agreement between the peer review team and the reviewed audit organization to avoid potential misunderstandings. (para. 5.84) Peer review team leadership should possess sufficient expertise and position within the reviewing audit organization that ensures the team s independence and objectivity; and leadership also ensures the proper supervision of the peer review team. (para. 5.87) Peer review teams should assess the effectiveness of the corrective actions implemented by the reviewed audit organization in response to any prior peer review recommendations linked to a deficiency. (para. 5.91) Peer review reports should include a statement that the peer review was conducted in accordance with GAGAS peer review requirements. (para ) Audit organizations that receive peer reviews ratings of Pass with Deficiencies or Fail should respond in writing to the deficiencies or significant deficiencies and related recommendations of the peer review team. In particular, with respect to each deficiency or significant deficiency in the report, the reviewed audit organization s letter of response should describe (1) the corrective actions already taken, target dates for planned corrective actions, or both, or (2) why corrective action is not considered necessary. (paras through 5.107) Standard is modified for both audit organizations affiliated with a recognized organization and audit organizations not affiliated with recognized organizations to require as follows: The peer review team should determine the type of peer review rating to issue based on the observed matters importance to the audit organization s system of quality control as a whole and the nature, causes, patterns, and pervasiveness of those matters. The matters should be assessed both alone and in aggregate. (paras and 5.99) The peer review team should aggregate and systematically evaluate any observed matters (circumstances that warrant further consideration by the peer review team) and document their evaluation. (paras and 5.100) 12

13 Chapter 6: Standards for Financial Audits Qualification requirements for auditors engaged to conduct financial audits of entities operating outside of the United States are further explained. para Auditors engaged to conduct financial audits of entities operating outside of the United States should meet the qualifications indicated in paragraph 6.04, or have certifications that meet all applicable national and international standards and serve in their respective countries as the functional equivalent of CPAs in the United States, work for nongovernment audit organizations that meet the requirements of paragraph 6.04, or work for government audit organizations. Standard is expanded to require that auditors perform audit procedures to ascertain the potential effect on the audit objectives if they become aware of waste that could be quantitatively or qualitatively significant to the audit objectives. (para. 6.16) Standard is expanded to require auditors to consider potential internal control deficiencies in their evaluation of the cause of identified findings when internal control is significant to the audit objectives. (para. 6.20) Standard is expanded to require that auditors report findings of waste when they conclude based on sufficient, appropriate evidence that instances of waste have occurred that have a material effect, either quantitatively or qualitatively, on the financial statements. (para. 6.35) Standard is modified to require auditors, when reporting separately from a financial audit, to make available to users the reports on internal control over financial reporting and compliance with provisions of laws, regulations, contracts, and grant agreements in the same manner as the financial audit reports to which they relate, when integrated audits are conducted. (para. 6.38) Standard is expanded to require that auditors communicate findings of waste in writing to audited entity officials when the auditors detect potential instances that do not have a material effect on the financial statements but warrant the attention of those charged with governance. (para. 6.39) Guidance is provided to further explain that reporting on internal control and compliance with provisions of laws, regulations, contracts, and grant agreements relates only to the most recent reporting period included, when comparative financial statements are presented. (para. 6.41) 13

14 Standards for Attestation Engagements and Reviews of Financial Statements Chapter 7: Standards for Attestation Engagements and Reviews of Financial Statements Statement on Standards for Attestation Engagements No. 18, Attestation Standards: Clarification and Recodification, is incorporated into this chapter by reference for auditors conducting attestation engagements in accordance with GAGAS. (para. 7.01) Statement on Standards for Accounting and Review Services No. 21, section 90 (Review of Financial Statements) is incorporated into GAGAS for auditors conducting reviews of financial statements in accordance with GAGAS. (para. 7.01) Qualification requirements for auditors engaged to conduct attestation engagements and reviews of financial statements engagements of organizations operating outside of the United States are further explained. (paras. 7.08, 7.70, and 7.83) Auditors engaged to conduct attestation engagements and reviews of financial statements of entities operating outside of the United States should meet the qualifications indicated in paragraph 7.07, 7.69, and 7.82 or have certifications that meet all applicable national and international standards and serve in their respective countries as the functional equivalent of CPAs in the United States; work for nongovernment audit organizations that meet the requirements of paragraphs 7.07, 7.69, and 7.82; or work for government audit organizations. Standard for examination engagements is expanded to require that auditors perform audit procedures to ascertain the potential effect on the audit objectives if they become aware of waste that could be quantitatively or qualitatively significant to the audit objectives. (para. 7.18) Standard for examination engagements is expanded to require that auditors consider potential internal control deficiencies in their evaluation of the cause of identified findings when internal control is significant to the engagement objectives. (para. 7.22) Standard for examination engagements is expanded to require that auditors report findings of waste when they conclude based on sufficient, appropriate evidence that instances of waste have occurred that are material, either quantitatively or qualitatively, and are significant to the audit objectives. (para. 7.41) Standard for examination engagements is expanded to require that auditors communicate findings of waste in writing to audited entity officials when the auditors detect potential instances that are not significant within the context of the audit objectives but warrant the attention of those charged with governance. (para. 7.42) Standard for review and agreed-upon procedures engagements is expanded to require that auditors communicate to those charged with governance and audited entity officials as appropriate instances of waste that come to their attention that warrant the attention of those charged with governance. (paras and 7.84) 14

15 Fieldwork Standards for Performance Audits Chapter 8: Fieldwork Standards for Performance Audits Guidance is revised to further explain that management assertions are not required when conducting a performance audit in accordance with GAGAS. (para. 8.14) Discussion of suitable criteria, including attributes and examples, is provided. (paras through 8.19) Internal control requirements and guidance are updated to align with the revised Standards for Internal Control in the Federal Government and Internal Control Integrated Framework. (paras through 8.65) Standard is expanded to require that auditors perform audit procedures to ascertain the potential effect on the audit objectives if they become aware of waste that could be quantitatively or qualitatively significant to the audit objectives. (para. 8.69) Standard is expanded to require that auditors consider potential internal control deficiencies in their evaluation of identified findings when developing the cause element of the identified findings. (para ) Reporting Standards for Performance Audits Reporting Standards for Performance Audits Standard is revised to require that audit organizations that meet the independence requirements for internal auditors include in the GAGAS compliance statement, where applicable, a statement that they are independent per the GAGAS requirements for internal auditors. (para. 9.03) Standard is expanded to require that when internal control is significant within the context of the audit objectives, auditors include in the audit report discussion of how the auditors considered the concept of accountability for use of public resources and government authority while assessing audit risk associated with internal control. (para. 9.24) Standard is expanded to require that auditors indicate in their report that the audit did not consider all internal control components if internal control that is significant to the audit objectives does not include all internal control components and underlying principles. (para. 9.25) 15

16 Standard is expanded to require that auditors report findings of waste when they conclude based on sufficient, appropriate evidence that instances of waste have occurred that are material, either quantitatively or qualitatively, and are significant to the audit objectives. (para. 9.32) Standard is expanded to require that auditors communicate findings of waste in writing to audited entity officials when the auditors detect potential instances that are not significant within the context oftheauditobjectivesbutwarrantthe attention of those charged with governance. (para. 9.33) There was only one Appendix in the Exposure Draft. Appendix 1: Acknowledgments Deborah V. Loveless, Tennessee Comptroller of the Treasury, Division of State Audit 16

17 33 Recently Issued Statements on Standards for Attestation Engagements (SSAE) 17

18 SSAE #16 (the SSAE formerly know as SAS 70) SSAE #16, Reporting on Controls at a Service Organization Issued April 2010 Effective for practitioners reports dated on or after June 15, 2011 Clarified, converged and restructured Was codified at AT-801 then recodified AT-C

19 SSAE #16, Reporting on Controls at a Service Organization Peer Review Questions: If the entity uses a service organization, did the auditor: Obtain an understanding of the nature and significance of the services provided by the service organization and their effect on the user entity s internal control relevant to the audit, sufficient to identify and assess the risks of material misstatement? Design and perform audit procedures responsive to those risks? The nature of the services provided by the service organization and the significance of those services to the user entity, including their effect on the user entity's internal control SSAE #16, Reporting on Controls at a Service Organization Peer Review Questions (cont d) The nature and materiality of the transactions processed or accounts or financial reporting processes affected by the service organization The degree of interaction between the activities of the service organization and those of the user entity The nature of the relationship between the user entity and the service organization, including the relevant contractual terms for the activities undertaken by the service organization 19

20 Organizations that may Require SOC Reports Software as a Service (SaaS) Application Service Providers (ASP) Credit Card Processing Platforms Cloud Computing Virtualization on demand Computing Services Internet Service Providers (ISP) Web Design and Development Web Hosting Social Media Content Tagging and Aggregators Data Center and Co-Location Providers Managed Services Organizations that may Require SOC Reports Third Party Administrators (TPA) Captive Providers Medical Billing Print and Mail Delivery Online Fulfillment Rebate Processing Online and Mail Transportation Services Tax Credit and Empowerment Services Payroll Services Registered Investment Advisors (RIA) 20

21 SSAE #18 (the SSAE formerly know as every other SSAE) SSAE #18, Attestation Standards: Clarification and Recodification Issued April 2016 Effective for practitioners reports dated on or after May 1, 2017 Clarified, converged and restructured Will be codified in AT-C sections AT-C Preface AT-C Section 105, Concepts Common to All Attestation Engagements AT-C Section 205, Examination Engagements AT-C Section 210, Review Engagements AT-C Section 215, Agreed Upon Procedures AT-C Section 305, Prospective Financial Information AT-C Section 310, Reporting on Pro Forma Financial Information AT-C Section 320, Reporting on a Examination of Controls at a Service Organization AT-C Section 395, Management Discussion and Analysis 21

22 SSAE #18, Attestation Standards: Clarification and Recodification - Convergence Oops, Something is missing? 43 SSAE #18, Attestation Standards: Clarification and Recodification - Convergence Consideration of standards of the IAASB International Standards on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information ISAE 3410, Assurance Engagements on Greenhouse Gas Emissions ISAE 3402, Assurance Reports on Controls at a Service Organization ISAE 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus 44 22

23 SSAE #18 Recodification and Structure AT C 105, Concepts Common to All Attestation Engagements AT 20, 50, 101 and 201 Every engagement + AT C 205, Examination Engagements or AT C 210, Review Engagements or AT C 215, AUP Engagements + AT C 305, Financial Forecasts and Projections (AT 301) AT C 315, Compliance Attestation (AT 601) When applicable AT C 310, Reporting on Pro Forma Information (AT 401) AT C 320, Reporting on Controls at a Service Organization (AT 801) AT C 395 Management s Discussion and Analysis (AT 701) SSAE #18, Attestation Standards: Clarification and Recodification - Convergence Oops, Something is still missing? 46 23

24 SSAE #18: Key Changes Requires a written assertion from responsible party. If the responsible party is not the engaging party, the written assertion is not required but the auditors report is required to be restricted and include a statement that that the responsible party did not provide an assertion. Required representation letter. Risk assessment for examination engagements. More detailed requirements, such as to obtain an engagement letter. Moves guidance for reporting on internal control in an integrated audit (AT 501) to SASs. Retains guidance for MDA examinations (AT 701) as is. SAS 129, Letters to Underwriters and Certain Other Requesting Parties (the SAS that is not formerly known - Comfort Letters) (AU-C 920) 24

25 SAS 130 (the SAS formerly known as the Oops, the SSAE that was missing) SAS No. 130: Audit of Internal Control Over Financial Reporting (ICFR) Integrated with Audit of Financial Statements Moved from attestation standards (AT 501) to auditing standards. Applies when auditor is required to examine and report on effectiveness of internal control over financial reporting. Effective for integrated audits for periods ending on or after December 15,

26 Key Provisions of SAS No.130 Removes option to examine and report on management s assertion about the effectiveness of internal control; required to examine and report directly on the effectiveness of ICFR. Highlights that COSO s Internal Control Integrated Framework and the GAO s Standards for Internal Control in the Federal Government, provide suitable and available criteria. Clarifies that the risk factors considered in audit of ICFR are the same as those in the financial statement audit. Materiality for ICFR is the same as Audit materiality. Allows the auditor to use the work of internal audit and others. Key Provisions of SAS No.130 SAS 130, Raise Any Red Flags with You?? 26

27 SAS No Amendment to SAS No. 122 Section 700, Forming an Opinion and Reporting on Financial Statement Audits Issued January 2016; effective for audits for periods ending on or after June 15, 2016 Clarifies that unless an audit is within the jurisdiction of the PCAOB, the auditor is required to conduct the audit in accordance with GAAS When the audit is not within the jurisdiction of the PCAOB, use the form of the report required by PCAOB standards with reference to GAAS We conducted our audits in accordance with the [auditing] standards of the Public Company Accounting Oversight Board and in accordance with auditing standards generally accepted in the United States of America Auditor Reporting, Including Going Concern 27

28 Auditor Reporting GOAL: Enhancing the communicative value and relevance of the auditor s report IAASB Auditor Reporting Project New section: - ISA 701, Communicating Key Audit Matters in the Independent Auditor s Report Amendments to other auditor reporting sections: - ISA ISA ISA ISA ISA 570 IAASB Auditor Reporting Standards Opinion section mandated first New sections: Key Audit Matters - Applicable to audits of listed entities - What keeps the auditor up at night Going Concern Other Information - When presented with the audited financial statements - Separate project to revise ISA 720 Other proposed improvements to enhance transparency and clarify responsibilities Effective for periods beginning on or after December 15,

29 Illustrative ISA Report INDEPENDENT AUDITOR S REPORT To the Shareholders of ABC Company [or Other Appropriate Addressee] Opinion We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of the Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Illustrative ISA Report Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 29

30 Illustrative ISA Report Key Audit Matters [Not Required for a Non-Listed Company May be Included at the Auditor s Discretion] Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Description of each key audit matter in accordance with ISA 701.] Illustrative ISA Report Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process. 30

31 Illustrative ISA Report Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of the auditor s responsibilities for the audit of the financial statements is located at [Organization s] website at: [website link].this description forms part of our auditor s report. [Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for the particular jurisdiction] [Auditor Address] [Date] Illustrative SAS Report ASB Redlined Letter.pdf ASB Letter.pdf Proposed effective date: Not decided yet. Proposed date for vote on exposure draft is May As of now, it is still "The proposed SASs and related proposed amendments would be effective no earlier than for audits of financial statements for periods ending on or after June 15, 2019,..." until the ASB discusses the comments at the July meeting. At that meeting, the board is likely to have a more specific effective date. Another point is that early implementation is not allowed; thus the reason for the way the current effective date is written (as above). 31

32 Additional Information Additional information is available on the IFAC website at: EXPOSURE DRAFT Going Concern 32

33 Going Concern Differences between GAAP and GAAS Period of time related to the going concern assessment GAAS reasonable period of time : not to exceed one year from date of financial statements. GAAP one year from date of issuance of financial statements Going Concern Interpretations Use applicable financial reporting framework - if GAAP, then FASB or GASB Definition of substantial doubt Definition of reasonable period of time Interim financial statements Disclosures & management s plan ASB looking to amend AU-C 570 (SAS 126, June 2012) 33

34 The ASB believes the following will be the most significant changes if this proposed SAS is issued as final. The ASB decided that in audits of special purpose frameworks and audits of single financial statements and specific elements, accounts, or items of a financial statement, the application guidance should include as an example that the requirement to consider fair presentation includes an evaluation of whether disclosures related to risk and uncertainties are needed to achieve fair presentation. If the going concern basis of accounting is applicable in the preparation of financial statements prepared in accordance with a special purpose framework, the ASB proposes that AU-C section 570 applies. The ASB believes the following will be the most significant changes if this proposed SAS is issued as final. The exposure draft also includes proposed amendments to AU-C section 930, Interim Financial Information. Under extant AU-C section 930, the auditor is required to perform inquiries and consider the adequacy of disclosures to address the issue of substantial doubt about the entity s ability to continue as a going concern. The proposed amendments to AU-C section 930 reflect a new requirement for the auditor to include an emphasis-of matter paragraph in the auditor s report when certain conditions or events exist related to substantial doubt about an entity s ability to continue as a going concern. This decision was based on the ASB s desire to achieve consistency in auditor reporting in both the annual audit and interim financial information. 34

35 Going Concern Interpretations ASB looking to amend AU-C 570 (SAS 126, June 2012) ASB looking to amend AU-C 800, Special Purpose Frameworks ASB looking to amend AU-C 805, Single Financial Statements, Specific Financial Statement Elements, Accounts, or Items. ASB looking to amend AU-C 930, Interim Financial Information Proposed Effective Date Periods beginning on or after December 15, 2017 EXPOSURE DRAFT AUDITOR INVOLVEMENT WITH EXEMPT OFFERING DOCUMENTS 35

36 Auditor Involvement Exempt Offerings Exempt Offerings: Securities exempt from registration under the Securities Act of 1933, as amended or Franchise offerings regulated by the Federal Trade Commission. Auditor Involvement Exempt Offerings Triggers for Involvement - Current: Assisting the entity in preparing information included in the offering document Reading a draft of the offering document at the entity s request Issuing a comfort or similar letter in accordance with AU-C section 920, Letters for Underwriters and Certain Other Requesting Parties, or an attestation engagement report in lieu of a comfort or similar letter on information included in the offering document Participating in due diligence discussions with underwriters, placement agents, broker-dealers, or other financial intermediaries in connection with an offering document Issuing an attestation report on information relating to the offering Providing written agreement (for example, an inclusion letter) for the use of the auditor s report in the offering document Signing a copy of the auditor s report for inclusion in the offering document 36

37 Auditor Involvement Exempt Offerings Triggers for Involvement: Assisting the entity in preparing information included in the offering document Reading a draft of the offering document at the entity s request Issuing a comfort letter Participating in due diligence discussions Issuing an attestation report on information relating to the exempt offering Providing written agreement for the use of the auditor s report in the offering document Updating the auditor s report for inclusion in the offering document SAS 133: Auditor Involvement with Exempt Offering Documents Trigger activities are Assisting the entity in preparing information included in the offering document Reading a draft of the offering document at the entity s request Issuing a comfort letter Participating in due diligence discussions Issuing an attestation report on information relating to the exempt offering Providing written agreement for the use of the auditor s report in the offering document Updating the auditor s report for inclusion in the offering document 37

38 Auditor Involvement Exempt Offerings Triggers for Involvement: Should there be additional triggers? For exempt offerings on or after June 15, 2018 Other Current and Upcoming Projects 76 38

39 ENHANCING AUDIT QUALITY A FOCUS ON PROFESSIONAL SKEPTICISM, QUALITY CONTROL AND GROUP AUDITS #AICPAnaaats KEY PUBLIC INTEREST ISSUES TO ADDRESS Auditing standards need to better address increasing complexity and new technologies in the business and audit environment, and deliver against the public s heightening expectations of audit quality The profile of tomorrow s auditor is to continue to be a critical challenger, supported by a regime focused on public interest and quality management, and well observable for stakeholders 78 39

40 PROFESSIONAL SKEPTICISM: KEY QUESTIONS BEING CONSIDERED What is professional skepticism? What are the skills/competencies required to exercise PS? What are the impediments affecting the consistent application of PS? How can the concept of PS be emphasized in the context of the projects on quality control, group audits, and accounting estimates (ISA 540)? What other actions may be necessary? Framework? Guidance? Training?.. QUALITY CONTROL QUALITY MANAGEMENT APPROACH Exploring a more proactive, scalable and robust response to managing quality: More easily adaptable to rapidly changing business environment Focus on monitoring and remediation investigating root causes of identified deficiencies, reassessment of quality risks and implementing remedial actions Emphasis on importance of firm governance, including leadership responsibilities for quality Tone at the top where is more emphasis needed? 40

41 QUALITY CONTROL (cont.) Emphasis on importance of the role and responsibilities of the engagement partner Exploring transparency reporting trends, including feasibility of international requirements The impact on audit quality of evolving audit delivery models Involving other auditors that are not component auditors is more guidance needed? Firms that operate as networks are more requirements and guidance needed? Monitoring and remediation (including root-cause analysis) Engagement quality control reviews reinforce importance and elevate prominence GROUP AUDITS NEED FOR A FRESH LOOK? How to drive a top-down approach as groups become more complex and structures continue to evolve Focus on roles and responsibilities of the group engagement partner and group engagement team, including sufficient and appropriate involvement in component auditor s work Acceptance of a group audit (including access issues) Component materiality Work on components that are not significant Consolidation procedures Emphasis on importance of strong two-way communication between group engagement team and component auditors Requirements and guidance for component auditors? 41

42 Next Steps Comment period closes: May 16, 2016 May Dec 2016: Analysis of comments; IAASB discussions Dec 2016 IAASB meeting: Presentation of project proposals for Quality Control and Group Audits; discussion about way forward on Professional Skepticism 2017 onwards: Standard-setting activities IAASB developing exposure drafts of changes to the ISAs and ISQC 1 for Quality Control and Group Audits ASB developing exposure drafts of changes to GAAS and SQCS 8 for Quality Control and Group Audits Auditor Reporting - DOL Revisions to auditor s report on EBPs to help auditors better understand their responsibilities and to provide users with more information about what auditors do, especially in the case of the limited scope audit Reporting on compliance with certain provisions of laws, regulations, plan documents, and other agreements Required procedures for reporting on compliance Exposure Draft proposed for 1/

43 Current and Upcoming Projects Sustainability Reporting Direct Engagements (Exposure Proposed 1/2017) Non-Yellow Book Performance Audits New Attestation section that would not require an assertion from the responsible party. Specified Procedures Engagements (Exposure Proposed 1/2017) (No Written Assertions) Generic Internal Control Attestation Standard (Other than ICFR at AU-C 501) 85 Related Assurance Services Data Analytics New auditing guide to replace Analytical Procedures Guide Address use of data analytics and other analytical procedures Cyber Security What s the effect on the audit of historical financial statements? What types of attestation engagements could be performed? 43

44 Helpful Information and Resources Authoritative standards for non-issuers (SASs, SSARSs, SSAEs, SQCSs) as of June 1 are available at AICPA Accounting and Auditing Technical Hotline (877) techinquiry@aicpa.org otline.aspx Questions Jerry E. Durham, CPA, CGFM, CFE 88 44

45 One other issue! 89 45