Enhancing Audit Quality Initiative – Emerging Industries and Risk Areas 


    The AICPA is committed to helping members maintain and enhance audit quality. The newly launched Enhancing Audit Quality initiative seeks to improve the consistency of quality across the profession by focusing firms and peer reviewers on new industries, industries with new or rising risks, audit areas of increased risk or areas that have shown to have increased inspection matters in the past. An AICPA-wide approach of enhanced materials, targeted training and robust peer reviews is planned to enhance audit quality.

    Further details regarding this initiative are included in the Enhancing Audit Quality Discussion Paper as well as the Enhancing Audit Quality initiative overview page. While the formal program will not be finalized until the responses to the discussion paper can be evaluated, the AICPA Peer Review Board has approved a partial implementation of the Emerging Industries and Risk Areas Initiative.

    The initial proposed emerging industries and risk areas follow.


    Independence
    As it relates to nonattest services provided to audit clients, particularly with respect to sufficiency of the client’s skills, knowledge and experience to oversee the services.

    Practitioners must be independent and comply with the requirements of Interpretation 101-3 when providing nonattest services to their attest clients1. Interpretation 101-3 provides specific guidance to CPAs on the types of nonattest services that impair independence as well as specific safeguards that may be implemented to reduce threats to an acceptable level. Notable changes for engagements beginning on or after December 15, 2014 are that preparing financial statements, among other commonly performed functions, will constitute nonattest services and that multiple nonattest services provided to a client can increase the significance of threats.

    One of the key safeguards to reduce the threat of management participation is that the client must designate an individual with suitable skill, knowledge, and/or experience (“SKE”) to assume the management responsibilities, oversee the nonattest service, evaluate the adequacy/results of the services performed, and accept responsibility for the results of the services. CPAs are expected to use their professional judgment and experience to determine whether the individual designated by the client can fulfill these responsibilities.

    Find associated EAQ products and resources at the AICPA Store.


    Sufficiency of Audit Evidence
    In particular, internal controls, risk assessment (including linkage to financial statement assertions), and sampling.

    Peer reviews as well as regulator inspections continue to note matters and issues in the area of sufficiency of audit evidence. These are most commonly noted among internal controls and risk assessment, where the documentation requirements are very specific yet involve professional judgment. Ultimately, however, the documentation should enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing, extent, and results of procedures, including significant findings or issues.

    In addition, sufficiency of audit evidence relates to the quality and quantity of audit evidence where an auditor uses sampling or other audit approaches that do not include testing of all transactions in an account balance or class. The documentation thereof should enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing, extent, and results of procedures, including significant findings or issues.

    Find associated EAQ products and resources at the AICPA Store.

    In addition, you can access a free archive of the November 17 webinar on this topic.  You have to register to view the archive. 


    Employee Benefit Plan Audits
    Including audits of both ERISA and government pensions.

    Regulatory and legislative developments have made it clear that there is a significant public interest in, and a higher risk associated with, audits of employee benefit plans. In addition, recent standards promulgated by GASB related to financial accounting and reporting of pensions both at the governmental plan and participating employer levels are extremely complex and will present challenges for auditors.

    Find associated EAQ products and resources at the AICPA Store.


    Municipalities
    In particular, those that issue securities.

    The Securities and Exchange Commission (SEC) has brought numerous charges related to municipal securities issuers misleading investors and defrauding investors in the bond market. Many of the charges are based on materially misleading statements or improper accounting and/or disclosure for transactions in the financial statements that are included in offering documents. Accordingly, peer reviewers will be focusing on the financial statement audits of municipal issuers (such as states, local governments, and certain not-for-profit and for-profit conduit borrowers) to determine if the financial statements properly reflect GAAP and that the auditors followed professional standards.

    Find associated EAQ products and resources at the AICPA Store.

    1 This material focuses on the independence requirements of CPAs when providing nonattest services to clients under AICPA professional standards. Some regulatory bodies, such as the SEC, PCAOB and GAO, have established independence requirements that may be more restrictive with regard to the provision of nonattest services for an audit client.




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