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Audit Risk Assessment Standards Updated

Audit risk assessment standards have been revised by the Auditing Standards Board of the American Institute of CPAs. The committee has issued Statement on Auditing Standards (SAS) No. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, which become effective for financial statements ending on or after Dec. 15, 2023. 

The new statement supersedes SAS No. 122, as amended, section 315 of the same title, and amends various AU-C sections in AICPA Professional Standards, provideing extensive guidance regarding the use of information technology and the consideration of IT general controls.

It addresses the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements, enhancing requirements and guidance on identifying and assessing risks of material misstatement, in areas of understanding an entity’s system of internal control and assessing control risk.

Among the changes are the following:

*Revised requirements for evaluating design of controls within the control activities component, including general IT controls, and determining whether these have been implemented;                                                                                                                                                                     *A new requirement to separately assess inherent risk and control risk;                                                                                                                   *A new requirement to assess control risk at the maximum level so if the auditor does not test the operating effectiveness of controls, the assessment of risk of material misstatement is the same as the assessment of inherent risk;                                                                              *New guidance on scalability;                                                                                                                                                                          *Revised requirements relating to audit documentation.                                                                                                                                             * *"A conforming amendment to perform substantive procedures for each relevant assertion of each significant class of transactions, account balance, and disclosure, regardless of the assessed level of control risk (rather than for all relevant assertions related to each material class of transactions, account balance, and disclosure, irrespective of the assessed risks of material misstatement, as previously required).”

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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