How Audits Changed This Year

Today’s businesses are coping with many risks. When undergoing internal audits, they are seeking independent, objective sources to identify and manage those risks. Under new standards imposed by the AICPA Auditing Standards Board, audits are now more effective and comprehensive.

That's because eight new interrelated standards (SAS 104-SAS 111) make improvements to the auditor’s assessment of the risks of material misstatement, whether caused by fraud or error. They became effective for audits of financial statements for periods beginning on December 15, 2006, although earlier adoption was permitted.

Specifically, the risk assessment standards require:

• A more in-depth understanding of an entity and its environment, including its internal control. That way, the auditor can identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them.

• A more rigorous assessment of the risks of where and how the financial statements could be materially misstated.

• Improved linkage between the auditor’s assessed risks and the nature, timing and extent of audit procedures performed in response to those risks.

The standards “get to the very heart of the audit process,” according to the AICPA and may significantly alter the engagement. The benefit: More comprehensive audits can add value to an organization and improve operations.