Statements of Position

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This proposed Statement on Auditing Standards (SAS) amends SAS No. 55, Consideration of Internal Control in a Financial Statement Audit (AICPA, Professional Standards, vol. 1, AU sec. 319), as amended by SAS No. 78, Consideration of Internal Control in a Financial Statement Audit: An Amendment to Statement on Auditing Standards No. 55 (AICPA, Professional Standards, vol. 1, AU sec. 319) to provide guidance to auditors about the effect of information technology (IT) on internal control, and on the auditor's understanding of internal control and assessment of control risk. The Auditing Standards Board (ASB) believes the guidance is needed because entities of all sizes increasingly are using IT in ways that affect their internal control and the auditor's consideration of internal control in a financial statement audit. Consequently, in some circumstances, auditors may need to perform tests of controls to perform effective audits. This proposed SAS amends SAS No. 55, as amended by SAS No. 78, to: 1. Incorporate and expand on the concept from SAS No. 80, Amendment to Statement on Auditing Standards No. 31, Evidential Matter (AICPA, Professional Standards, vol. 1, AU sec. 326.14), that in circumstances where a significant amount of information supporting one or more financial statement assertions is electronically initiated, recorded, processed, and reported, the auditor may determine that it is not practical or possible to restrict detection risk to an acceptable level by performing only substantive tests for one or more financial statement assertions. In such circumstances, the auditor should obtain evidential matter about the effectiveness of both the design and operation of controls to reduce the assessed level of control risk. 2. Describe how IT may affect internal control, evidential matter, and the auditor's understanding of internal control and assessment of control risk. 3. Describe both benefits and risks of IT to internal control, and how IT affects the components of internal control, particularly the control activities and information and communication components. 4. Provide guidance to help auditors determine whether specialized skills are needed to consider the effect of computer processing on the audit, to understand the controls, or to design and perform audit procedures. 5. Clarify that in obtaining an understanding of the entity's financial reporting process, the auditor should understand how both standard, recurring entries and nonstandard, nonrecurring entries are initiated and recorded, and the auditor should also understand the controls that have been placed in operation to ensure that such entries are authorized, complete, and correctly recorded. 6. Update terminology and references to IT systems and controls. The proposed SAS does not: 1. Eliminate the alternative of assessing control risk at the maximum level and performing a substantive audit, if that is an effective approach. 2. Change the requirement to perform substantive tests for significant account balances and transaction classes. This proposed SAS amends SAS No. 55, as amended by SAS No. 78.

ISBN

ed00-11-01t

Publication Date

2000

Relational Format

Book

Keywords

Audited financial statements -- Standards -- United States; Corporations -- United States -- Finance -- Automation; Information technology

Disciplines

Accounting | Taxation

Comments

Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants; Exposure draft (American Institute of Certified Public Accountants), 2000, Nov. 1

Proposed statement on auditing standards : amendment to Statement on auditing standards no. 55, Consideration of internal control in a financial statement audit, as amended by Statement on auditing standards no. 78, Consideration of internal control in a financial statement audit : an amendment to Statement on auditing standards no. 55;Amendment to Statement on auditing standards no. 55, Consideration of internal control in a financial statement audit, as amended by Statement on auditing standards no. 78, Consideration of internal control in a financial statement audit : an amendment to Statement on auditing standards no. 55

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