AICPA Proposes New SAS on Audit Evidence

The AICPA’s Auditing Standards Board (ASB) has issued the Exposure Draft, Proposed Statement on Auditing Standards: Audit Evidence. The comment deadline is September 18, 2019.

The Need for a New Audit Evidence Standard

In developing the new standard, the ASB addressed a number of significant issues, including: (a) the use of emerging technologies in the digital era, such as artificial intelligence and robotic processes, audit data analytics, and blockchain; (b) reliance on external information sources as audit evidence; and (c) the significance of professional skepticism. The proposed standard also addresses the accuracy, completeness, and reliability of audit evidence.

This proposed Statement on Auditing Standard (SAS) explains what constitutes audit evidence in an audit of financial statements and addresses how an auditor evaluates information to be used as audit evidence. If adopted as proposed, it would conform the audit evidence standard more closely with the International Standard on Auditing (IAS) 500, Audit Evidence. The proposed SAS would also supersede SAS 122, Statements on Auditing Standards: Clarification and Recodification, as amended, Section 500, Audit Evidence (AU-C section 500, Audit Evidence).

Key Definitions in Applying Audit Evidence Standard

Key definitions in the Exposure Draft include:

  • Audit evidence: “Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based”;
  • Sufficiency of audit evidence: “The measure of the persuasiveness of audit evidence. The persuasiveness of audit evidence necessary is affected by the auditor’s assessment of the risks of material misstatement”; and
  • Appropriateness of audit evidence: “The measure of the relevance and reliability of audit evidence.”

In applying these definitions, the proposal sets out attributes and factors of information to be used as audit evidence, including:

  • The relevance and reliability of the information;
  • The source from which the information is obtained; and
  • Whether the information corroborates or contradicts the assertions in relevance and reliability of the information, the source from which the information is obtained, and whether the information corroborates or contradicts the assertions in the financial statements.

The new standard, if adopted as proposed, also requires the auditor to read it in conjunction with other AU-C sections that address the auditor’s responsibilities to identify and assess the risks of material misstatement (AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement); design and implement responses to the risks of material misstatement identified and assessed by the auditor (AU-C section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained); and form an opinion on the financial statements (AU-C section 700, Forming an Opinion and Reporting on Financial Statements).

Effective Date

If finalized as proposed, the new SAS would be effective for audits of financial statements for periods beginning on or after June 15, 2021.

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