Statements on Auditing Standards
Statements on Auditing Standards (SASs) are authoritative standards for auditors in the conduct of external financial statement audits. In the United States, these standards are issued by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA).
Key aspects of SASs include:
- Scope and Purpose: SASs provide guidelines on the procedures auditors should employ during the course of a financial statement audit. They address various aspects of the audit process, from the initial client engagement to the issuance of an audit report.
- Structure: Each SAS has a specific number and title that reflects its content. The statement outlines the standards, often providing background information, definitions, and detailed guidance on how to conduct the audit in the specified area.
- Authoritative Nature: SASs are considered authoritative guidance for auditors conducting financial statement audits of private entities. However, public companies (those registered with the U.S. Securities and Exchange Commission, or SEC) are under the jurisdiction of the Public Company Accounting Oversight Board (PCAOB), which has its own set of auditing standards.
- Evolution and Updates: Over time, new SASs are issued, and older ones are updated or superseded. This evolution reflects changes in the auditing profession, emerging issues, or shifts in the broader financial reporting landscape.
- Key Areas Addressed: SASs can address a broad range of topics, including:
- Planning and supervision of an audit
- Assessment of risks and internal controls
- Evidence collection and evaluation
- Use of specialists or external experts
- Audit sampling techniques
- Communications with those charged with governance (e.g., an entity’s board of directors)
- Reporting on the results of an audit
- Integration with Other Standards: While SASs primarily address the process of auditing financial statements, auditors also need to be aware of other standards that may impact their work, such as Statements on Standards for Attestation Engagements (SSAEs) or Statements on Quality Control Standards (SQCS).
- International Context: While the U.S. has its SASs, there are also International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). Many countries either adopt ISAs directly or use them as a basis for their own national auditing standards.
In practice, any CPA firm conducting financial statement audits will be well-versed in the relevant SASs and will regularly update its procedures and training to ensure compliance with these standards.
Example of Statements on Auditing Standards
Here’s a hypothetical and simplified example of a Statement on Auditing Standards (SAS):
Statement on Auditing Standards (SAS) No. 150
Title: Evaluating and Reporting on Fair Value Measurements
Issued by: Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA)
Effective Date: Audits of financial statements for periods ending on or after December 31, 20XX
The increasing use of fair value measurements in financial statements has highlighted the need for specific guidance on auditing these measures.
The objective of the auditor is to obtain sufficient appropriate audit evidence about the reasonableness of fair value measurements and disclosures included in the financial statements.
- Risk Assessment: The auditor should assess risks associated with fair value measurements, considering both valuation techniques and inputs used by the entity.
- Use of Experts: If the auditor lacks expertise in the valuation of certain assets or liabilities, they should consider the use of a valuation expert.
- Testing Data and Assumptions: Auditors should evaluate the relevance and reliability of data and assumptions used by the entity in their fair value measurements.
- Review of Models: If an entity uses valuation models, the auditor should evaluate the appropriateness of the model and consider testing its accuracy and consistency.
- Disclosures: The auditor should assess whether the entity’s disclosures related to fair value measurements are in accordance with the applicable financial reporting framework.
- Audit Conclusions and Reporting: If the auditor concludes that the fair value measurements or disclosures are materially misstated or not adequately supported, they should consider the implications for their audit report.
Implementation Guidance and Illustrative Examples:
Appendices provide additional guidance on specific challenges related to auditing fair value measurements, including examples of testing methodologies and considerations when using a valuation expert.
Remember, this is a simplified and fictional example. Real SASs would have more detail, including background information, more in-depth guidance, specific procedures, and possibly references to other relevant standards or literature. If an auditor or accounting professional needs to refer to a specific SAS, they would likely use authoritative resources or databases that house the full text of these standards.