Within the first weblog on this collection, we checked out the identification and evaluation of dangers of fabric misstatement. On this second put up, we’ll dig into guaranteeing audit high quality. Particularly, we’ll take a look at the necessity for auditors to take care of skilled skepticism and doc their work totally to enhance audit effectiveness and effectivity.

Revised audit documentation necessities

Among the many new provisions in SAS 145 is the revision of the audit documentation necessities. This now contains the next:

• Documentation of the analysis of the design of sure recognized controls and willpower of whether or not such controls have been applied.

• The rationale for important judgments made relating to the recognized and assessed dangers of fabric misstatement. In different phrases, how did the auditor establish a threat of fabric misstatement? And why did they assess it the way in which they did?

There could also be alternatives for efficiencies with regard to documentation round design and implementation of inside controls. The extant customary is considerably imprecise on this regard, main many auditors to check design and implementation for quite a lot of controls related to the audit. SAS 145 clarifies which controls auditors are required to judge for design and decide implementation. These are known as “recognized controls” and embody:

• Controls addressing important dangers.

• Controls over journal entries comparable changes.
• Controls for which the auditor plans to check working effectiveness, together with controls that handle dangers for which substantive procedures don’t present adequate applicable audit proof.
• Different controls primarily based on auditor judgment.

For the second merchandise, as outlined within the Government Abstract: “The shape, content material, and extent of audit documentation that’s adequate to allow an skilled auditor having no earlier expertise with the audit to know the character, timing, and extent of the chance evaluation procedures carried out and the outcomes of these procedures, together with the conclusions reached and the rationale for the numerous skilled judgments made, rely on numerous elements, together with the necessity to doc a conclusion or the premise for a conclusion in any other case not readily determinable from the documentation of the work carried out or audit proof obtained.”

The important thing right here is for auditors to doc the rationale behind their threat evaluation work and the conclusions they reached because of that work. Once more, this is a chance for companies to enhance audit efficiencies and effectiveness.

Sustaining skilled skepticism

Skilled skepticism is a pillar of audit high quality and important in analyzing audit data in an unbiased style. So it possible comes as little shock that SAS 145 highlights the significance of sustaining skilled skepticism and points new and enhanced steerage.

Inside SAS 145 there are a number of key provisions which might be designed to reinforce and emphasize the auditor’s skilled skepticism. These embody:

Clarifying that an applicable understanding of the entity and its setting, and the relevant monetary reporting framework, gives a basis for with the ability to keep skilled skepticism all through the audit.

Highlighting the advantages of sustaining skilled skepticism throughout the required engagement crew dialogue.

Highlighting that contradictory proof could also be obtained as a part of the auditor’s threat evaluation procedures.

When auditors keep skilled skepticism, they will successfully do the next:

• Consider contradictory data that involves their consideration.
• Be alert to situations that will point out attainable misstatement because of fraud or error.
• Contemplate data which may be used as audit proof.

• Decide whether or not audit proof helps their identification and evaluation of the dangers of fabric misstatement in mild of the entity’s nature and circumstances.
• Contemplate responses to inquiries and different data obtained from administration and people charged with governance.

A brand new ‘stand-back’ requirement

SAS No. 145 features a new “stand-back” requirement. This requires auditors to cease and mirror on the completeness of their identification of great courses of transactions, account balances, and disclosures.

Particularly, if they’ve decided that any materials courses of transactions, account balances, or disclosures are usually not important (that’s, there are not any related assertions recognized), SAS 145 requires the auditor to “stand again” and consider whether or not that willpower stays applicable.

In mild of the brand new “stand-back” requirement, companies could wish to think about embracing a top-down method, as famous in an AICPA weblog, which said {that a} top-down method “aligns nicely with the brand new stand-back requirement in SAS No. 145 in addition to the brand new steerage on scalability.”

As outlined within the conforming amendments to SAS 145, a top-down method includes:

• Starting on the monetary assertion stage;

• Utilizing the auditor’s understanding of the general dangers to ICFR;
• Specializing in entity-level controls, which can be oblique or direct controls as described in SAS No. 145;
• Working right down to important courses of transactions, account balances, and disclosures, and their related assertions, which directs consideration to courses of transactions, accounts, disclosures, and assertions that current an affordable chance of fabric misstatement of the monetary statements;
• Directing consideration to courses of transactions, accounts, disclosures, and assertions that current an affordable chance of fabric misstatement of the monetary statements;
• Verifying the auditor’s understanding of the dangers within the entity’s processes; and

• Choosing controls for testing that sufficiently handle the assessed threat of fabric misstatement to every related assertion.

Corporations could discover that such an method may also help drive extra environment friendly and efficient audits.

Conclusion

Being aware of audit documentation and sustaining skilled skepticism can go a good distance towards guaranteeing a high quality audit in addition to avoiding potential dangers. Take motion now to make sure that your agency is totally ready for SAS 145. To study extra, view our webinar providing early steerage on SAS No. 145.