In March 2006, the AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) Nos. 104-111, commonly referred to as the "Risk Assessment Standards". These SASs are effective for audits of financial statements for periods beginning on or after December 15, 2006.

How the Standards Will Affect Your EBP Audits

The requirements and guidance in SAS Nos. 104-111 likely will result in a substantial change in audit practice. Overall the new SASs change the audit process as follows:

·         Expand the quality and depth of the auditor's required understanding of the entity and its environment, including its internal control.

·         Requires the auditor to assess the risks of material misstatements at the financial statement level and at the assertion level on all audits based on the understanding obtained.

·         Eliminates the "default to maximum" for control risk, which should encourage testing of controls.

·         Emphasizes importance of the entity's risk assessment process.

·         Strengthens the linkage between assessed risks and the auditor's responses to those risks.

·         Clarifies the auditor's ability to rely on audit evidence gathered in prior audits.

·         Strengthens guidance for testing disclosures.

·         Clarifies and expands guidance on evaluating audit findings.

·         Expands documentation requirements.

Resources

The Center and the AICPA have taken a number of steps to compile and develop resources to assist auditors in implementing these new standards. Those resources can be accessed through the following links:

SAS No. 104, Amendment to Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures ("Due Professional Care in the Performance of Work")

SAS No. 105, Amendment to Statement on Auditing Standards No. 95, Generally Accepted Auditing Standards

SAS No. 106, Audit Evidence

SAS No. 107, Audit Risk and Materiality in Conducting an Audit

SAS No. 108, Planning and Supervision

SAS No. 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement

SAS No. 110, Performing Audit Procedures in Response to Assessed Risks and Evaluation the Audit Evidence Obtained

SAS No. 111, Amendment to Statement on Auditing Standards No. 39, Audit Sampling

Audit Risk Alert, Understanding the New Auditing Standards Related to Risk Assessment

This Audit Risk Alert summarizes the eight risk assessment standards, highlights significant new requirements found in the standards, and helps you understand the many new requirements.

Audit Guide, Assessing and Responding to Audit Risk in a Financial Statement Audit. This Guide provides both authoritative and nonauthoritative guidance on applying the risk assessment standards.

Estimating Planning Materiality and Tolerable Misstatement

SAS No. 107, Audit Risk and Materiality in Conducting an Audit, addresses materiality considerations in a plan audit.

Performing Preliminary and Substantive Analytical Procedures

SAS No. 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, states that the auditor should perform analytical procedures to obtain an understanding of the entity and its environment, including its internal control. Such procedures help the auditor determine where there may be potential misstatements.

"What Could Go Wrong" Questions

SAS No. 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, requires the auditor to assess the risks of material misstatements at the financial statement level and at the assertion level for classes of transactions, account balances, and disclosures. The auditor identifies risks, and then relates the identified risks to what can go wrong at the assertion level. One way an auditor can do this is to ask "what could go wrong" questions.

Risk Assessment Standards (SAS Nos. 104-111) Client Talking Points

This document outlines talking points to assist you in communicating the new requirements to your clients prior to commencing work to avoid confusion.

EBPAQC Live Forum – Applying the Risk Assessment Standards in Employee Benefit Plans
The Center sponsored this live forum call on April 22 2008. Hear members of the EBPAQC Executive Committee discuss the Risk Assessment Standards and their implications to EBP audits. Learn More>>

Assessing and Responding to Risks in a Financial Statement Audit
This article, written by Charles Landes, Vice President—AICPA Professional Standards and Services, discusses the process of assessing risks and controls leading to the concept of the risk of material misstatement (Journal of Accountancy, July 2006).

Assessing and Responding to Risks in a Financial Statement Audit: Part II
This article, written by Charles Landes, Vice President—AICPA Professional Standards and Services, discusses how the auditor responds to the risk of material misstatement in designing and performing audit procedures (Journal of Accountancy, and January 2007).

CPE and Self-Study

Risk Assessment Standards: Understanding the Entity and Assessing Risk

Auditor's Risk Assessment Process: Tackling the New Risk Assessment SASs