Statements of Position

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The Auditing Standards Board (ASB) has issued this exposure draft to provide expanded operational guidance on the consideration of fraud in conducting a financial statement audit. The proposed changes in auditing standards also clarify the auditor's present responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether caused by error or fraud. In addition, the proposed changes provide added guidance on the standard of due professional care in the performance of work, including the need to exercise professional skepticism, and the concept of reasonable assurance. Proposed Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit: This proposed Statement on Auditing Standards (SAS), Consideration of Fraud in a Financial Statement Audit: 1. Describes fraud and its characteristics. 2. Requires the auditor to specifically assess the risk of material misstatement due to fraud and provides categories of fraud risk factors that should be considered in the auditor's assessment. 3. Provides guidance on how the auditor should respond to the results of the assessment. 4. Provides guidance on the evaluation of audit test results as they relate to the risk of material misstatement due to fraud. 5. Describes related documentation requirements. 6. Provides guidance regarding the auditor's communication about fraud to management, the audit committee, and others. Proposed Amendments to SAS No. 1, Codification of Auditing Standards and Procedures: The exposure draft contains proposed revisions to Section 110 of SAS No. 1, Codification of Auditing Standards and Procedures (AICPA, Professional Standards, vol. 1, AU sec. 110, "Responsibilities and Functions of the Independent Auditor"), that include a statement of the auditor's responsibility in connection with planning and performing an audit of financial statements. The ASB believes the addition of this paragraph to the standards would clarify the auditor's presently existing responsibility in an audit for the detection of material misstatements in financial statements resulting from fraud. While the statement of responsibility is clarified, it is not substantively changed - that is, it continues to be framed by the concepts of materiality and reasonable assurance. The proposed revisions to Section 230 of SAS No. 1 (AICPA, Professional Standards, vol. 1, AU sec. 230, "Due Professional Care in the Performance of Work"), include an expanded discussion of due professional care and reasonable assurance. The objective of these revisions is to emphasize the need for professional skepticism throughout the conduct of the audit and to provide guidance on the concept of reasonable assurance. The proposed revisions to SAS No. 1 described above would provide a foundation for the operational guidance on the consideration of fraud to be contained in the proposed SAS, Consideration of Fraud in a Financial Statement Audit. Proposed Amendment to SAS No. 47, Audit Risk and Materiality in Conducting an Audit: The exposure draft also contains proposed revisions to SAS No. 47, Audit Risk and Materiality in Conducting an Audit (AICPA, Professional Standards, vol. 1, AU sec. 312). These revisions would provide a foundation within the audit risk model for the consideration of fraud and incorporate certain guidance relating to errors that was formerly included in SAS No. 53, The Auditor's Responsibility to Detect and Report Errors and Irregularities (AICPA, Professional Standards, vol. 1, AU sec. 316), which is proposed to be superseded. This proposed SAS would supersede SAS No. 53. It also would amend: 1. Section 110 of SAS No. 1 (AICPA, Professional Standards, vol. 1, AU section 110, "Responsibilities and Functions of the Independent Auditor"). See appendix A herein for the proposed amendment. 2. Section 230 of SAS No. 1 (AICPA, Professional Standards, vol. 1, AU sec. 230, "Due Professional Care in the Performance of Work"). See appendix B herein for the proposed amendment. 3. SAS No. 47. See appendix C herein for the proposed amendment. The proposed SAS also would require other conforming changes to certain of the auditing standards and to other materials, such as industry audit and accounting guides.

Publication Date

1996

Relational Format

Book

Keywords

Fraud; Financial statements -- United States

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.

Proposed statement on auditing standards : consideration of fraud in a financial statement audit and amendments to statements on auditing standards no. 1, Codification of auditing standards and procedures, and no. 47, Audit risk and materiality in conducting an audit ;Consideration of fraud in a financial statement audit and amendments to statements on auditing standards no. 1, Codification of auditing standards and procedures, and no. 47, Audit risk and materiality in conducting an audit; Exposure draft (American Institute of Certified Public Accountants), 1996, May 1

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