A lot of time and effort has been given to the issue of global harmonization of generally accepted accounting principles while, over a similar period, a much quieter revolution has been taking place in the world of U.S. generally accepted auditing standards (GAAS). Over the past seven years, the AICPA Auditing Standards Board (ASB) has embarked on an Audit Standards Project, with the ultimate goal of converging U.S. GAAS and international standards on auditing by the end of the year. This will result in GAAS for nonpublic companies being more consistently applied. While the practical implications of many of these changes to auditing standards may be subtle, some of the organization and wording changes, as well as additional audit requirements, are significant.
One primary change that will affect companies doing business internationally is the introduction of the “Group Audit” standard, based on ISA 600 (revised), The Work of Related Auditors and Other Auditors in the Audit of Group Financial Statements. U.S. standards include only limited guidance in this area (SAS no. 1, section 543, Part of Audit Performed by Other Independent Auditors).
The clarified SAS, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), will create significant changes in the scoping of multi-location audits. The requirements of the clarified SAS will require audit firms involved in an engagement to audit group financial statements to consider, among other things, the following:
- The acceptance and consideration process;
- The risk assessment process to the financial statements both individually to components of an organization and to the organization as a whole;
- The determination of materiality to the financial statements both individually to components of an organization and to the organization as a whole;
- The level and adequacy of communication, review and oversight of component auditors;
- The adequacy and appropriateness of audit evidence by the group’s engagement team in forming an opinion on the financial statements as a whole.
In the past, group auditors may have relied on audits of component financial statements without much involvement in the component auditors work or referenced the work of other auditors in their opinion, even if the component financial statements were audited under different audit standards or had been presented under a different accounting framework than the parent company’s financial statements. Effective for 2012 audits, the group auditor will need to have component audits in accordance with the audit standards of the group auditor and in accordance with the reporting framework of the parent company.
This represents a substantial change that may impact costs of the audit, since group auditors will need to be more involved in component audits or obtain component audit opinions that are consistent with their own opinions.
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