TOP AUDITING ISSUES FOR 2013 - CCH

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MODULE 4 — CHAPTER 12 — Working with the New Codification of Statements on Auditing Standards (Clarified) 133 contains conceptual principles that shape the overall objectives of an audit, and broad, overarching requirements that govern an audit’s conduct. It is intended to be the initiating or originating document for the new Codification. If a practitioner or a student of auditing were to read only one new standard cover-to-cover, this should be the one. Reading this standard will re-orient established practitioners to the changed landscape of the auditing literature. Academicians, students, and young or beginning practitioners should also give this standard the most careful study because it will provide them with a conceptual foundation and help them to place the rest of the auditing literature into a broader context. This standard forms the starting point for the new Codification. It sets forth concepts, definitions, and requirements, and establishes the organizational structure that is pervasive to the rest of GAAS. It addresses the overall responsibilities of the independent auditor when conducting an audit of financial statements in accordance with GAAS, sets forth the auditor’s overall objectives, and explains both the nature and scope of an audit designed to meet the auditor’s overall objectives, and the scope, authority, and structure of GAAS. This standard also includes requirements that establish the auditor’s general responsibilities applicable to all audits. 250 Consideration of Laws and Regulations in an Audit of Financial Statements. This section requires auditors to perform procedures to identify instances of noncompliance with laws and regulations that may materially affect the financial statements. Previous standards did not require auditors to perform any procedures unless specific information came to their attention concerning possible illegal acts. Under this section, auditors are required to: Inspect correspondence, if any, with relevant licensing or regulatory authorities Obtain an understanding of the legal and regulatory framework Obtain an understanding of how the entity is complying with that framework Determine whether the auditor has a responsibility to report suspected noncompliance to outside parties Document identified or suspected noncompliance, including the results of any discussions about such items 265 Communicating Internal Control Matters Identified in an Audit. This section adds requirements for the auditor to: Include in the written communication an explanation of the potential effects of the significant deficiencies and material weaknesses identified. The guidance material included in this section, however, states that the effects need not be quantified.
134 TOP AUDITING ISSUES FOR 2013 CPE COURSE Communicate to only management, orally or in writing, other deficiencies in internal control identified in the audit that have not been communicated to management by other parties and that are, in the auditor’s professional judgment, sufficiently important to merit management’s attention. Risk Assessment and Response to Assessed Risks (AU-C Sections 300–499) The clarified standards do not change or expand previous standards in this area in any significant way. Audit Evidence (AU-C Sections 500–599) The following sections contain substantive changes that may present transitional issues. 501 Audit Evidence—Specific Considerations for Selected Items. This section takes a more principles-based approach to determining whether to seek direct communication with the entity’s attorneys. Direct communication through a letter of inquiry is required only when the auditor assesses a risk of material misstatement concerning litigation or claims, or when audit procedures indicate that material litigation or claims may exist. Auditors are required to document the basis for a decision not to seek direct communication with legal counsel. 510 Opening Balances. The clarified standard makes it explicit that reviewing a predecessor’s audit documentation cannot be the only procedure performed to obtain sufficient appropriate evidence regarding opening balances in initial audits. This is a significant departure from previous practice. The auditor’s objectives, according to the new standard, are to obtain sufficient appropriate evidence about whether: Opening balances contain misstatements that materially affect the current period’s financial statements Accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements Changes in accounting policies have been properly accounted for, adequately presented, and disclosed in accordance with the applicable financial reporting framework Procedures to address these objectives include: Determining whether prior period closing balances are brought forward correctly Determining whether opening balances reflect appropriate application of accounting policies Evaluating whether current period audit procedures provide evidence
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69 MODULE 2: IMPLEMENTATION ISSUES
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INDEX 183 Management participation
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INDEX 185 Review standards interpre
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QUIZZER QUESTIONS — Module 1 191
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NOTES
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CCH LEARNING CENTER At CCH, we reco
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TOP AUDITING ISSUES FOR 2013 - CCH

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