To address concerns about the clarity, length, and complexity of its standards, the Auditing Standards Board (ASB) is clarifying the professional standards it issues. The objective of the ASB “clarity project” is to clarify and converge AICPA audit, attest, and quality control standards with those of the International Auditing and Assurance Standards Board (IAASB). Special drafting conventions are used to make the standards easier to read, understand, and apply, and for that reason the resulting standards have come to be known as the “clarified standards.”
The ASB clarity drafting conventions include
- Establishing objectives for each clarified section
- Including a definitions section, when relevant, in each clarified section
- Separating requirements from application and other explanatory material
- Numbering application and other explanatory material paragraphs using an A- prefix and presenting them in a separate section that follows the requirements section
- Using formatting techniques, such as bulleted lists, to enhance readability
The ASB, which has substantially completed clarifying Statements on Auditing Standards (SASs), has moved on to clarifying Statements on Standards for Attestation Engagements, also commonly known as the attestation standards. The attestation standards establish requirements for performing and reporting on examinations, reviews, and agreed-upon procedures that address subject matter other than financial statements, for example, a schedule of investment returns, the effectiveness of an entity’s controls over the security of a system, the fairness of the presentation of a statement of greenhouse gas emissions, and the privacy of personal information.
The extant attestation standards include four general standards that provide a framework for developing an attestation engagement. Those standards are AT section 20, Defining Professional Requirements in Statements on Standards for Attestation Engagements; AT section 50, SSAE Hierarchy; AT section 101, Attest Engagements (which addresses examination and review engagements); and AT section 201, Agreed-Upon Procedures Engagements.
The ASB has proposed a new structure for the general attestation standards that would consist of an initial section that contains concepts common to all attestation engagements, and three separate sections for examinations, reviews, and agreed-upon procedures. These four sections would supersede AT sections 20, 50, 101 and 201.
In addition, the clarified attestation standards would include separate sections for each of the six subject-matter specific AT sections, which address prospective financial information, pro forma financial information, internal control over financial reporting, compliance with laws and regulations, management’s discussion and analysis, and controls at service organizations.
The subject-matter specific attestation standards would build on, and not repeat, the requirements and guidance in the applicable general attestation standards. For example, a practitioner examining an entity’s compliance with laws and regulations would need to comply with (1) the section that addresses concepts common to all attestation engagements, (2) the section that addresses examination engagements, and (3) the section that addresses compliance with laws and regulations.
Because one of the objectives of the clarity project is convergence with standards of the IAASB, the foundation for the common concepts, examination, and review sections of the proposed attestation standards is the April, 2011 IAASB exposure draft, ISAE 3000, Assurance Engagements Other than Audits and Review of Historical Financial Information, final ISAE 3410, Assurance Engagements on Greenhouse Gas Emissions, and the AICPA’s attestation standards. ISAE 3000 is the IAASB’s framework standard for assurance engagements (the equivalent of attestation engagements.)
The following are some of the conclusions reached by the ASB regarding the proposed clarified attestation standards:
- The practitioner should be required to obtain a written assertion in an examination or review engagement.
- If the responsible party refuses to provide written representations, and the responsible party is not the engaging party, the practitioner may report directly on the subject matter and restrict the use of the report to the engaging party.
- The clarified attestations standards should include a preface that explains what the attestation standards are and how they are organized.
- A risk assessment model should be incorporated in the section of the attestation standards that addresses examination engagements.
- The guidance in the clarified attestation standards should not be overburdened by the incorporation of all of the detailed requirements in the clarified auditing standards.
- The illustrative examination reports should address a variety of subject matters, for example, qualitative subject matter, such as the effectiveness of controls.
- The guidance on compilations of prospective financial statements will be removed from the attestation standards and the AICPA Accounting and Review Services Committee will address this topic.
The ASB will discuss a revised draft of the proposed general attestation standards at its May 2013 meeting, at which time it will be asked to vote to expose those standards for comment.