Statement on Auditing Standards, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)

1. Supersedes SAS No. 1 section 543, Part of Audit Performed by Other Independent Auditors (AICPA, Professional Standards, vol. 1, AU sec. 543).

2. Drafted to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors).

3. Will be effective for audits of financial statements for periods beginning on or after December 15, 2012.

4. The SAS was drafted using ISA 600 as a base.

(1) ISA 600 addresses group audits. It defines a group audit as an audit of group financial statements. Group financial statements are financial statements with more than one component. Component is defined as an entity or business activity for which management prepares financial information that should be included in the group financial statements.

(2) Under both ISA 600 and the proposed SAS, the auditor responsible for signing the auditor’s report on the group financial statements (referred to as the group engagement partner) is responsible for:

(a) the direction, supervision, and performance of the group audit engagement in compliance with professional standards and regulatory and legal requirements and

(b) determining whether the auditor’s report that is issued is appropriate in the circumstances.

b) Diverges from ISA 600 in that ISA 600 does not permit the auditor’s report on the group financial statements to make reference to another independent auditor (referred to as a component auditor), unless required by law or regulation to include such reference.

5. The SAS, consistent with extant AU section 543, permits the auditor’s report to make reference to a component auditor.

6. Contains requirements and application material that are not in ISA 600, which results in substantive differences in the wording of the objectives, requirements, and application material between ISA 600 and the proposed SAS.

7. The ASB’s convergence policy requires compelling reasons for differences between its standards and those of the IAASB. The ASB believes:

a) That the ability to make reference to the report of another auditor is appropriate in the United States.

b) No compelling practice issues suggest a need to change an approach that has always been permitted by generally accepted auditing standards (GAAS) in the United States.

c) The size, complexity, and diversity of some audits, in particular the federal government in which withdrawal or disclaimer of opinion are not viable options, make eliminating the option to make reference to a component auditor problematic.

d) That there will be considerable practical problems with access issues, particularly with equity investments, under the ISA approach.

e) That there is no difference in the effectiveness of the audit following either approach when the audits are conducted in accordance with GAAS.

8. When no reference is made to a component auditor in the auditor’s report on the group financial statements, no substantive differences in the requirements exist between ISA 600 and the proposed SAS.

9. This SAS contains Exhibit G “Comparison of Requirements of Statement on Auditing Standards, Special Considerations, Audits of Group Financial Statements (Including the Work of Component Auditors)” that shows the differences in requirements between the SAS and ISA 600.

10. The SAS is broader than AU section 543. It lists the procedures necessary for the group engagement team to perform in order to be involved with component auditors to the extent necessary for an effective audit. It explains the degree of involvement required when reference is made to component auditors in the auditors’ report.

11. Requirements —The requirements of the SAS address the following:

a) Acceptance and continuance considerations

b) The group engagement team’s process to assess risk

c) The determination of materiality to be used to audit the group financial statements

d) The determination of materiality to be used to audit components

e) The selection of components and account balances for audit testing

f) Communications between the group engagement team and component auditors

g) Assessing the adequacy and appropriateness of audit evidence by the group engagement team in forming an opinion on the financial statements

12. In situations when the group engagement partner does not make reference to a component auditor in the audit report on the group financial statements, all of the requirements of the proposed SAS apply, when relevant in the context of the specific group audit engagement.

Statement on Auditing Standards, Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures (Redrafted)

1. Supersedes SAS No. 57, Auditing Accounting Estimates and Auditing Fair Value Measurements and Disclosures and SAS No. 101, Auditing Fair Value Measurements and Disclosures (AICPA, Professional Standards, vol. 1, AU sec. 342 and 328).

2. Issued September 4, 2009 with a comment period that ended November 30, 2009.

3. Effective for audits of financial statements for periods ending on or after December 15, 2012.

4. Changes From Existing Standards

a) Does not change or expand SAS No. 57 or SAS No. 101 in any significant respect.

b) The SAS is restructured to reflect a more principles-based approach to standard setting.

c) As done in other revised SASs, certain requirements that are duplicative of broader requirements (in this case SAS No. 57 and SAS 101) have been moved to application and other explanatory material, consistent with ISA 540.

d) Consistent with the approach taken by the IAASB in the development of ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Estimates and Related Disclosures, the proposed SAS combines AU section 342, Auditing Accounting Estimates with AU section 328, Auditing Fair Value Measurements and Disclosures (AICPA, Professional Standards, vol. 1).

5. Other considerations

a) The ASB considered the disposition of AU section 332, Auditing Derivatives Estimates (AICPA, Professional Standards, vol. 1) and concluded that many of the requirements of AU section 332 are redundant with or very similar to other requirements in the risk assessment standards.

b) Believe these are better addressed as interpretative guidance in the Audit Guide Auditing Derivative Instruments, Hedging Activities, and Investments in Securities.

c) A few requirements that were not covered elsewhere in the standards were included along with related application guidance in the SAS Audit Evidence Specific Considerations for Selected Items when AU section 331, Inventories and AU section 337, Inquiry of a Client’s Lawyer Concerning Litigation, Claims and Assessments (AICPA, Professional Standards, vol. 1), were redrafted for clarity and convergence using ISA 501 (Redrafted), Other Evidence as a base.

6. Supplements to the Exposure Draft

The Audit and Attest Standards Staff prepares supplementary materials for many of the proposed SASs. However, supplementary material for proposed SASs was not a part of the Exposure draft or the SAS and includes:

a) A matrix document, which compares ISA 540, the proposed SAS, and extant AU sections 342 and 328. The schedule contains the following:

(1) ISA 540

(2) The proposed SAS, marked to show differences in language between the ISA and the proposed SAS (new and deleted material are shown in colored track changes.)

(3) The requirements and guidance in extant AU section 342, mapped against the proposed SAS, to demonstrate how the material in AU section 342 has been reflected in the proposed SAS

(4) The requirements and guidance in extant AU section 328, mapped against the proposed SAS, to demonstrate how the material in AU section 328 has been reflected in the proposed SAS

b) Mapping documents, which map the requirements and guidance contained within SAS No. 57 and SAS No. 101 to the proposed SAS to demonstrate how the material in SAS No. 57 and SAS No. 101 has been reflected in the proposed SAS.

c) The supplementary materials can be found on the AICPA website, www.aicpa.org under the Professional Resources – Accounting and Auditing tab.

Redrafted Statement on Auditing Standards, External Confirmations

1. This SAS

a) Supersedes SAS No. 67, The Confirmation Process (AICPA, Professional Standards, vol. 1, AU sec. 330).

b) Redrafts SAS No. 67 to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

2. Convergence

a) Drafted using International Standard on Auditing (ISA) No. 560, Subsequent Events, as a base.

b) Differences between the proposed SAS and ISA No. 560, for which the ASB believes no compelling reason for the difference exists, have been eliminated.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more common in the United States, and to tailor examples and guidance to the U.S. environment. The ASB believes that such changes will not create differences between the application of ISA No. 560 and the application of the proposed SAS.

3. Effective Date

The proposed SAS will be effective for audits of financial statements for periods beginning on or after December 15, 2012.

4. Changes from Existing Standards

a) Is not expected to change practice in any significant respect;

b) To reflect a more principles-based approach to standard setting, certain requirements that are duplicative of broader requirements in SAS No. 67 have been moved to application and other explanatory material, consistent with ISA No. 505. In the ASB’s view, this has not changed the overall effectiveness of the proposed SAS.

c) Most significant changes to existing standards are as follows:

(1) Responsibilities of the auditor when management refuses to allow the auditor to send a confirmation request. These responsibilities include inquiries as to reasons for the refusal, evaluating alternative procedures and impact on the risk assessment. When and if the auditor concludes that management’s refusal is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures the auditor should include communicate with those charged with governance These procedures are not currently required by AU section 330.

(2) Added application material to the proposed SAS regarding the use of oral responses to confirmation requests as audit evidence.

(a) It clarifies that the receipt of an oral response to a confirmation request does not meet the definition of an external confirmation.

(b) Provides guidance on how the response may be considered part of alternative procedures performed in order to obtain sufficient appropriate audit evidence.

(c) The definition of confirmation has been changed.

(i) The ASB has expanded the ISA definition of an external confirmation to include direct access by the auditor to information held by a third party.

(ii) Third-party involvement is increasingly common, and the ASB believes that the inclusion of this concept clarifies the definition.

(iii) The ASB believes this clarification is an improvement to the ISA definition because it specifically addresses a situation that is becoming increasingly common, and this change to the ISA definition is not inconsistent with the intent of the IAASB’s definition.

Statement on Auditing Standards, Audit Sampling (Redrafted)

1. This SAS

a) Supersedes SAS No. 39, Audit Sampling (AICPA, Professional Standards, vol. 1, AU sec. 350).

b) Redrafts SAS No. 39 to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with International Standard on Auditing (ISA) No. 530 (Redrafted), Audit Sampling,

2. Convergence

a) Drafted using ISA No. 530 (Redrafted) as a base.

b) Differences between the proposed SAS and ISA No. 530 (Redrafted) for which the ASB believes no compelling reason for the difference exists have been eliminated.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more commonly used in the United States, and to tailor examples and guidance to be more appropriate to the U.S. environment. The ASB believes that such changes will not create differences between the application of ISA No. 530 (Redrafted) and the application of the proposed SAS.

3. Effective Date

The proposed SAS will be effective for audits of financial statements for periods beginning on or after December 15, 2012.

4. Changes from Existing Standards

a) The SAS does not change or expand SAS No. 39 in any significant respect.

b) To reflect a more principles-based approach to standard setting, certain requirements that are duplicative of broader requirements in SAS No. 39 have been moved to application and other explanatory material, consistent with ISA No. 530 (Redrafted). In the ASB’s view, this has not changed the overall effectiveness of the proposed SAS.