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AICPA Auditing Standards Board – Summary of January 11-14, 2021 Meeting Published

Review Engagements – AICPA Issues SSAE 22 on Review Engagements

Employee Benefit Plans – 2020 Edition of Audit and Accounting Guide Published

Depository and Lending Institutions – New Edition of AICPA Audit and Accounting Guide Published

Investment Companies – New Edition of AICPA Audit and Accounting Guide Published

Use of Specialists – AICPA’s ASB Proposes New SAS on the Use of Specialists and Pricing Information Obtained from External Information Sources

Single Audits – GAQC Alert 416 Published

Preparation, Compilation, and Review Engagements – AICPA Publishes New Edition of its Audit and Accounting Guide

Direct Examination Engagements – AICPA Issues SSAE 21 on Direct Examination Engagements

Digital Assets – AICPA Updates Digital Assets Practice Aid to Include Additional Questions & Answers

Material Misstatements – AICPA Proposes Standard on Assessing Risks of Material Misstatement

Accounting Estimates – AICPA Releases Updated Standard on Auditing Accounting Estimates

Digital Assets – AICPA Updates Practice Aid on Accounting for and Auditing of Digital Assets

Articles

AICPA Auditing Standards Board – Summary of January 11-14, 2021 Meeting Published

Summary - The ASB has published a high-level summary of its January 11-14, 2021 meeting. The ASB voted to expose proposed revisions to AU-C Section 210, Terms of Engagement, which would “require a prospective successor auditor, once management authorizes the predecessor auditor to respond to inquiries from the auditor, to inquire of the predecessor auditor regarding identified or suspected fraud or noncompliance with laws or regulation (NOCLAR).” The Professional Ethics Executive Committee (PEEC) is also considering proposed revisions to the AICPA Code of Professional Conduct regarding NOCLAR, and the ASB plans to issue its exposure draft in conjunction with an anticipated exposure draft from PEEC by the end of February, with a comment period of at least 90 days.

The ASB also voted to expose proposed standards intended to convergence with the International Auditing and Assurance Standards Board’s (IAASB) recently finalized quality management standards. The exposure draft, Proposed Quality Management Standards, includes three interrelated proposed standards:

Proposed Statement on Quality Management Standards (SQMS) A Firm’s System
Proposed SQMS Engagement Quality Reviews; and
Proposed Statement on Auditing Standards (SAS) Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards.

The proposed standards bring important changes to the way firms are expected to manage quality for its accounting and auditing practice. The proposed standards include a new proactive risk-based approach to effective quality management systems within firms, which improves the scalability of the standards because it promotes a system tailored to the nature and circumstances of the firm and its engagements.

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Review Engagements – AICPA Issues SSAE 22 on Review Engagements

Summary - The AICPA’s Auditing Standards Board (ASB) has issued Statement on Standards for Attestation Engagements (SSAE) No. 22, Review Engagements. The new SSAE provides performance and reporting requirements and application guidance for review engagements performed in accordance with the attestation standards.

Objectives of a Review Engagement
The practitioner’s objectives with respect to a review engagement are to:
Offer limited assurance about whether material modifications should be made to the subject matter for it to be in accordance with or based on the criteria;
Express a conclusion in a written report about whether the practitioner is aware of any material modifications that need to be made to the subject matter for it to be in accordance with the criteria or the responsible party’s assertion so that it is fairly stated; and
Communicate further as required by relevant AT-C provisions.

For purposes of SSAE 22 and the review engagement requirements, the term “subject matter” “encompasses the terms underlying subject matter and subject matter information, as defined in AT-C section 105. If only one of these terms is applicable, that term is used.”

SSAE 22
SSAE 22 supersedes SSAE 18, Attestation Standards: Clarification and Recodification, Section 210 of the same title. The requirements and guidance in SSAE 22 supplement those of AT-C Section 105, Concepts Common to All Attestation Engagements. As noted in the ASB’s accompanying At a Glance document, Revisions to Attestation Review Standard for Clarity on Procedures That May Be Performed, Report Transparency, and Consistency with Other Professional Standards, SSAE 22 “revises AT-C section 210 for consistency with AT-C section 205, Assertion-Based Examination Engagements (pursuant to SSAE No. 21, Direct Examination Engagements)....”

SSAE 22 also:
Describes the procedures that may be performed in a review agreement;
Specifies requirements that must be met in the practitioner’s report, including an informative summary of the work performed as a basis for the conclusion; and
Permits the practitioner to express an adverse conclusion.

The ASB expects the enhancements in SSAE 22 will provide “helpful information to users of the review reports by explaining the nature of the work done in the review.” It also believes that permitting practitioners to provide the user with an adverse conclusion where necessary so that the user is aware of material misstatements as well as the effects of the misstatements is in the public interest.

Effective Dates
SSAE 22 is effective for practitioners’ review reports dated on or after June 15, 2022. Early implementation is permitted only if the practitioner also implements early the amendments to AT-C Section 105 included in SSAE 21.

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Employee Benefit Plans – 2020 Edition of Audit and Accounting Guide Published

Summary - The AICPA has published the 2020 edition of Audit and Accounting Guide, Employee Benefit Plans. This guide has been developed by the AICPA Employee Benefit Plans Expert Panel, the Guide Overhaul Task Force and the Employee Benefit Plans Guide Task Force to assist practitioners in performing and reporting on their audit engagements and to assist management of employee benefit plans in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (GAAP).

This edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate. Relevant guidance issued through August 1, 2020, has been considered in the development of this edition of the guide.

For more information, click here.

Depository and Lending Institutions – New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies. This guide has been developed by the AICPA Guides Combination Task Force to assist practitioners in performing and reporting on their audit or their attestation engagements, and to assist management in the preparation of their financial statements in conforming with U.S. generally accepted accounting principles (GAAP).

This new edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate. Relevant guidance issued through July 1, 2019, has been considered in the development of this edition of the guide. However, this guide does not include all audit, accounting, reporting, and other requirements applicable to an entity or a particular engagement.

Relevant guidance that is issued and effective on or before July 1, 2019, is incorporated directly in the text of this guide. Relevant guidance issued but not yet effective as of July 1, 2019, but becoming effective on or before December 31, 2019, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance.

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Investment Companies – New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Investment Companies. This guide has been developed by the AICPA Guides Combination Task Force to assist practitioners in performing and reporting on their audit or their attestation engagements, and to assist management in the preparation of their financial statements in conforming with U.S. GAAP.

This new edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate. Relevant guidance issued through July 1, 2020, has been considered in the development of this edition of the guide. However, this guide does not include all audit, accounting, reporting, and other requirements applicable to an entity or a particular engagement.

Relevant guidance that is issued and effective on or before July 1, 2020, is incorporated directly in the text of this guide. Relevant guidance issued but not yet effective as of July 1, 2020, but becoming effective on or before December 31, 2020, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance.

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Use of Specialists – AICPA’s ASB Proposes New SAS on the Use of Specialists and Pricing Information Obtained from External Information Sources

Summary - The AICPA’s Auditing Standards Board (ASB) issued the exposure draft, Proposed Statement on Auditing Standards, Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources (Exposure Draft). The comment deadline is February 4, 2021.

The proposed Statement on Auditing Standard (SAS), if adopted as proposed, would amend:
SAS 122, Statements on Auditing Standards: Clarification and Recodification, as amended, sections 501, Audit Evidence — Specific Considerations for Selected Items, and 620, Using the Work of an Auditor’s Specialist; and
SAS 143, Auditing Accounting Estimates and Related Disclosures.

The ASB has issued the Exposure Draft in response to comment letters received on the exposure draft of SAS 143 requesting additional guidance relating to PCAOB Auditing Standard (AS) 2501, Auditing Accounting Estimates, Including Fair Value Measurements. As noted in the Explanatory Memorandum to the Exposure Draft, the proposed amendments would:
Provide guidance on application of SAS 143 “when management has used the work of a specialist in making accounting estimates as well as other proposed amendments to enhance guidance about evaluating the work of the management’s specialist;”
Provide that using the work of an external inventory-taking firm would not include using the work of a management’s specialist;
Add a new appendix to AU-C Section 500, Audit Evidence, to provide guidance on the use of pricing information obtained from external information sources to be used as audit evidence for estimates related to the fair value of financial instruments; and
Amend AU-C Section 620 to enhance guidance on using the work of an auditor’s specialist.

If adopted as proposed, the amendments to AU-C Sections 501, 540, and 620 will be effective for audits of financial statements for periods ending on or after December 15, 2023.

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Single Audits – GAQC Alert 416 Published

Summary - The AICPA has published GAQC Alert No. 416 which provides various information, including:
A status update on the expected addendum to the Office of Management and Budget (OMB) 2020 Compliance Supplement (Supplement addendum) and a related GAQC comment letter; A summary of topics discussed at a recent Single Audit Roundtable meeting, including significant concerns on the new Provider Relief Fund program; Updated illustrative audit reports are now available on the GAQC Web site, as well as a marked report to show changes needed for the 2018 edition of Government Auditing Standards (Yellow Book); and A hold the date reminder for upcoming GAQC Web events.

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Preparation, Compilation, and Review Engagements – AICPA Publishes New Edition of its Audit and Accounting Guide

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Preparation, Compilation and Review Engagements. Issued by the Accounting and Review Services Committee (ARSC), this new edition contains the latest developments in performing preparation, compilation and review engagements.

You will find ARSC's best advice on:

Recently issued Statement on Standards for Accounting and Review Services (SSARS) No. 25, Materiality in a Review of Financial Statements and Adverse Conclusions;
SSARS No. 24, Omnibus Statement on Standards for Accounting and Review Services — 2018; SSARS No. 23, Omnibus Statement on Standards for Accounting and Review Services — 2016, and
SSARS No. 22, Compilation of Pro Forma Financial Information.

For more information, click here.

Direct Examination Engagements – AICPA Issues SSAE 21 on Direct Examination Engagements

Summary - The AICPA’s Auditing Standards Board (ASB) has issued Statement on Standards for Attestation Engagements (SSAE) No. 21, Direct Examination Engagements.

SSAE 21 adds new AT-C Section 206, Direct Examination Engagements. SSAE 21 also supersedes AT-C Section 205, Examination Engagements, and changes the title to Assertion-Based Examination Engagements. It also amends SSAE No. 18, Attestation Standards: Clarification and Recodification, as Amended, and AT-C Section 105, Concepts Common to All Attestation Engagements (AICPA, Professional Standards, AT-C sec. 105).

Direct Examination Engagements
New AT-C Section 206 contains performance and reporting requirements and application guidance for direct examination engagements. As noted in the accompanying At a Glance document, AT-C Section 206 “enables practitioners to perform an examination engagement in which the practitioner obtains reasonable assurance by measuring or evaluating underlying subject matter against criteria and expressing an opinion that conveys the results of that measurement or evaluation.”

The practitioners’ objectives in conducting a direct examination agreement include:
Obtaining reasonable assurance by measuring or evaluating the underlying subject matter against the criteria and performing other procedures to obtain sufficient appropriate evidence;
Expressing an opinion in a written report that conveys the results of the measurement or evaluation; and
Communicating in accordance with the results of the practitioner's procedures as required by AT-C Section 206.

Assertion-Based Examination Engagements
New AT-C Section 205 provides performance and reporting requirements and application guidance for assertion-based examination engagements. The requirements and guidance supplement the requirements and guidance in Section 105.

The practitioners’ objectives in an assertion-based examination agreement include:

Obtaining reasonable assurance about whether the subject matter as measured or evaluated against the criteria is free from material misstatement;
Expressing an opinion in a written report about whether the subject matter is based on or in accordance with the criteria, or the responsible party’s assertion is fairly stated, in all material requests; and
Communicating further as required by relevant AT-C Sections.

SSAE 21 is effective for practitioners’ reports dated on or after June 15, 2022.

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Digital Assets – AICPA Updates Digital Assets Practice Aid to Include Additional Questions & Answers

Summary - The AICPA has updated its Practice Aid, Accounting for and Auditing of Digital Assets, to include new nonauthoritative guidance discussing the holding of crypto assets by broker-dealers, crypto assets and fair value measurement, and accounting for stablecoin holdings.

The Practice Aid, originally issued in December 2019, provides nonauthoritative guidance for financial statement preparers and auditors on accounting for and auditing digital assets under GAAP and GAAS. The new material is complementary to the accounting guidance previously issued in December and the additional guidance published in July 2020 on client acceptance and continuance.

For purposes of applying the guidance, digital assets are defined broadly to include digital records, made using cryptography for verification and security purposes, on a distributed ledger (i.e., blockchain). Although all industries encounter change, the digital assets ecosystem is evolving rapidly. As firms seek to provide audits to entities within the ecosystem, they must give caution and consideration to unique risks and challenges.

The updated Practice Aid includes 13 new questions and answers relating to the following subject-matter areas:

The definition of an investment company when engaging in digital asset activities and the effect of participation in digital asset activities;
Accounting by an investment company for digital assets it holds as investments;
Recognition, measurement and presentation of digital assets specifically to broker-dealers;
Crypto assets that require fair value measurement, including determining the principal (or most advantageous) market; and
Accounting for stablecoin holdings, including how investors that do not apply specialized industry guidance should account for holding a stablecoin.

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Material Misstatements – AICPA Proposes Standard on Assessing Risks of Material Misstatement

Summary - The Auditing Standards Board (ASB) of the AICPA has issued the exposure draft, Proposed Statement on Auditing Standards (SAS), Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. The proposed SAS is designed to superseded SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, as amended, Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. The comment deadline is November 25, 2020.

“The way business is conducted and the manner in which entities record, process and summarize financial information has evolved rapidly,” said Bob Dohrer, AICPA Chief Auditor. “This evolution affects the auditor’s assessment of the risks of material misstatement. This proposed SAS, which reflects this ongoing transformation, improves audit quality by enhancing the auditor’s process for identifying and responding to the risks of material misstatement in an entity’s financial statements.”

The ASB based the proposal on the International Standard on Auditing (ISA) 315, Identifying and Assessing the Risks of Material Misstatement. The overall objectives of this proposed SAS are to:Enhance the requirements and guidance on identifying and assessing the risks of material misstatement, particularly the guidance that addresses the entity’s system of internal control and information technology; and
Revise the definition of significant risks. The current definition focuses on risks that require special audit considerations, whereas the proposed revision focuses on where those risks lie on the spectrum of inherent risk and includes new guidance intended to enhance an auditor’s professional skepticism.

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Single Audits – GAQC Alert 416 Published

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Accounting Estimates – AICPA Releases Updated Standard on Auditing Accounting Estimates

The Auditing Standards Board (ASB) of the AICPA has issued the new standard, Statement on Auditing Standards No. (SAS) 143, Auditing Accounting Estimates and Related Disclosures. SAS 143 supersedes SAS No. 122 Section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, and amends various other AU-C Sections in AICPA Professional Standards.

“This new auditing standard provides more robust guidance for auditors who are addressing an increasingly complex financial reporting environment,” said Bob Dohrer, CPA, CGMA, AICPA Chief Auditor. “In our current period of economic uncertainty and volatility, management’s asset impairment estimates are particularly important, and this standard will aid auditors in assessing them.”

What SAS 143 Does
New SAS 143 is one piece of a larger AICPA project to enhance audit quality (see the AICPA’s Enhancing Audit Quality Initiative). It enables auditors to address today’s new accounting standards and to enhance the auditor’s focus on factors driving estimation uncertainty and potential management bias.

Among the noteworthy changes, SAS 143 requires inherent risk and control risk to be assessed separately for accounting estimates.

SAS 143 addresses the auditor’s responsibilities relating to accounting estimates in an audit of financial statements. These include fair value accounting estimates and related disclosures. In the introduction, SAS 143 notes that in auditing accounting estimates, the auditor is responsible for obtaining “sufficient appropriate audit evidence about whether the accounting estimates and related disclosures in the financial statements are reasonable, in the context of the applicable financial reporting framework.”

The ASB has issued additional documents to assist practitioners in implementing the new standard, including:

SAS No. 143 At a Glance, Auditing Accounting Estimates and Related Disclosures; and
Linkages Between SAS No. 143, Auditing Accounting Estimates and Related Disclosures (AU-C Section 540), and Other AU-C Sections.

Effective Date
SAS 143 will be effective for audits of financial statements for periods ending on or after December 15, 2023.

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Digital Assets – AICPA Updates Practice Aid on Accounting for and Auditing of Digital Assets

The AICPA has updated its Practice Aid, Accounting for and Auditing of Digital Assets, to include new material on how to audit digital assets, with the focus on Client Acceptance and Continuance.

The Practice Aid, originally issued in December 2019, provides nonauthoritative guidance for financial statement preparers and auditors on accounting for and auditing digital assets under GAAP and GAAS. The new material is complementary to the accounting guidance previously issued in December. The new guidance is based on professional literature and experience from members of the AICPA Digital Assets Working Group (DAWG) and AICPA staff, and is specific to GAAS.

The updated Practice Aid provides auditors with detailed information to consider when accepting or continuing audit engagements that involve digital assets. CPA firms seeking to provide audits to entities involved with digital assets need to ensure that they undertake only audit engagements that are appropriate. This requires evaluation of whether the audits can be performed in accordance with professional standards and applicable legal and regulatory requirements to enable an appropriate auditor’s report. The updated Practice Aid provides guidance to enable that evaluation.

Before accepting or continuing an engagement, firms need to assess items including:

The auditor skill sets and competencies, including the firm’s current industry expertise and understanding of digital assets;
Management’s skill sets and competencies, including with respect to maintaining the entity’s books and records and securing its assets; and
Client management’s integrity, commitment to compliance with laws and regulations, and its overall business strategy and the role the entity serves or intends to serve within the digital assets ecosystem.

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