The Public Company Accounting Oversight Board (PCAOB) recently proposed a standard, AS 1000, to revolutionize auditing. It would address the core principles and responsibilities of the auditor, such as reasonable assurance, professional judgment, due professional care, and professional skepticism. In addition, it would also amend some other standards related to fundamental audit responsibilities.
With this new standard in place, auditors must exercise greater due professional care regarding supervision and review while reducing the maximum period for assembling complete audit documentation from 45 to 14 days. This could make your job easier and more efficient than ever before!
Learn more about AS 1000 and how it will transform audits.
What Is PCAOB?
PCAOB is a nonprofit organization established by the Sarbanes-Oxley Act of 2002. It is responsible for overseeing the audits of public companies, ensuring that they are conducted in accordance with auditing standards, and providing guidance on best practices.
Why Do Audit Standards Need To Change?
Audit standards constantly evolve as financial reporting processes become more complex and dynamic. The PCAOB has determined that the current audit standards are outdated, not reflective of current practices, and have not kept up with the increasing sophistication of financial reporting. Additionally, they may be inadequate in addressing emerging risks or other changes in auditing guidance.
What Is AS 1000?
AS 1000 is the new standard that consolidates, updates and improves auditing standards. The update would consolidate existing standards AS 1001, AS 1005, AS 1010, and AS 1015 into AS 1000. It seeks to provide auditors with greater clarity on their responsibilities while ensuring they are held to a higher standard of professional care.
It covers reasonable assurance, professional judgment, due professional care, and professional skepticism. The proposed standard also amends certain existing requirements related to fundamental audit responsibilities.
Section 1 – Introduction and Objective
Auditors make sure that the information in financial statements is accurate and honest. This important job helps to protect investors. It’s like being a watchdog for the public. Auditors must be independent of their clients and always do what is best for the public trust. PCAOB wants to remind auditors that they have an important duty to help keep investors safe by writing honest, accurate, and truthful reports.
An audit helps investors. It is like a report card that shows if the company’s money is presented correctly and if their controls for reporting money are working well. Having an audit and report makes people trust the company more.
The proposed standard outlines the auditor’s principles and responsibilities for conducting an audit in line with the PCAOB standards. Following these standards ensures that the auditor can provide a reliable opinion in the auditor’s report, which investors and financial statement users can use to make investment decisions.
Section 2 – Professional Qualifications Of The Auditor
The proposed standard requires auditors to be independent, follow ethical requirements, and be competent in their duties. It goes further than the existing standards and clarifies what each means in greater detail. For example, AS 1000 clarifies that auditors are not independent if they or their firm provide tax services to an audit client.
The proposed standard defines competence as possessing the necessary knowledge, skills, and abilities that allow an auditor to perform their assigned tasks according to professional and legal requirements and the firm’s policies and procedures. The auditor should have technical training and proficiency as an auditor to demonstrate their knowledge and skills.
Section 3 – Due Professional Care, Including Professional Skepticism
PCAOB is proposing a change to the auditor’s standard to clarify that due professional care should be exercised in all aspects of the audit, not just in the planning, performance, and report preparation stages. This means the obligation extends to procedures for accepting and continuing clients and periods after the auditor’s report has been issued.
The proposed standard emphasizes that due professional care pertains to the auditor’s actions and the quality of those actions. It involves acting responsibly and diligently, exercising professional skepticism, maintaining integrity, and following relevant professional and legal requirements. We suggest keeping the phrase “reasonable care and diligence” and explaining that “good faith and integrity” refers to acting with “integrity.”
Section 4 – Professional Judgment
Although the existing standards refer to the use of professional judgment, they do not explain what it means. Therefore, the proposed standard would require the auditor to exercise professional judgment; it provides that this judgment involves applying relevant training, knowledge, and experience to make informed decisions and reach well-reasoned conclusions about the courses of action that are appropriate in the circumstances, such that the audit is planned and performed and the report or reports are issued in accordance with applicable professional and legal requirements.
Section 5 – Conducting an Audit
The proposed standard for auditors requires them to plan and conduct audits in a way that ensures they gather enough suitable evidence to obtain reasonable certainty about whether financial statements are free of significant errors or fraud when auditing financial statements, or whether there are material weaknesses in Internal Control over Financial Reporting (ICFR) as assessed by management when auditing ICFR. This standard also requires the auditor to have a reasonable basis for giving their opinion.
How Will AS 1000 Change Auditing?
Implementing AS 1000 will usher in a new era of audit responsibility. Auditors will be required to exercise greater due professional care when it comes to supervising and reviewing their work. Additionally, they must assemble complete audit documentation in 14 days instead of 45.
This could ultimately make audits easier and more efficient by providing greater clarity and precision regarding audit responsibilities. It could also help reduce the time spent on audits, improving the overall efficiency of financial reporting processes.
When Will AS 1000 Go Into Effect
The PCAOB board is seeking public comment through May 30th, 2023. Once the comment period ends, The Board will review all comments received and decide whether to adopt the proposed rules as they are or with changes. If the Board adopts final rules, the SEC must approve them before taking effect as per Section 107 of Sarbanes-Oxley.
If PCAOB and the SEC approve the proposal, the current timeline for implementation would be June 30th, the year after the standard is approved. Currently, that would be June 30th, 2024.
The PCAOB recently proposed AS 1000, a new standard to revolutionize auditing. It seeks to provide greater clarity on the responsibilities of an auditor while increasing the due professional care and reducing the time required for assembling complete audit documentation.
If approved, AS 1000 will go into effect on June 30th, 2024.
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