Seven New Auditing Standards That Will Change the Sarbanes Oxley Audits

After the current market crisis, the US Public Companysignificant effect on the risks of material misstatement.
Accounting Oversight Board is proposing changes to4th Proposed AS: The Auditor's Responses to the
its auditing standards that describe the rules of anyRisks of Material Misstatement
Sarbanes Oxley audit.The auditors should apply professional skepticism in
The new challenge for the auditors is to assess andgathering and evaluating audit evidence.
respond to risks during an audit.Professional skepticism includes a questioning mind and
Audit risk is the material risk that the auditors willa critical assessment of the appropriateness and
express an inappropriate opinion when the financialsufficiency of audit evidence.
statements are materially misstated. The objective of5th Proposed AS: Evaluating Audit Results
the audits is not to zero this risk, but to to limit audit riskSome definitions here are interesting:
to a low level, so that the auditor can provideError is an unintentional misstatement in the financial
reasonable assurance that the financial statementsstatements.
fairly present, in all material respects, the financialMisstatement is anything that causes the financial
position, results of operations, and cash flows of a firm.statements not to be presented fairly in conformity
The proposed changes are:with the applicable financial reporting framework.
1st Proposed Auditing Standard (AS) from theUncorrected misstatements are misstatements
PCAOB: Audit Risk in an Audit of Financial Statementsaccumulated during the audit hat management has not
The auditors must plan and perform the audit to obtaincorrected.
reasonable assurance about whether there is material6th Proposed AS: Consideration of Materiality in
mistatement in the financial statements due to error orPlanning and Performing an Audit
fraud. The auditors must applying due professionalThe auditors must establish a materiality level for the
care and obtaining sufficient appropriate audit evidencefinancial statements as a whole that is appropriate
2nd Proposed AS: Audit Planning and Supervisionespecially in light of the surrounding circumstances. In
Planning an audit includes planned risk assessmentorder to determine the nature, timing, and extent of
procedures and responses to the risks of materialaudit procedures, the materiality level as a whole
misstatement. Planning is a continual and iterativeneeds to be expressed as a specified amount.
process that begins shortly after (or in connection with)7th Proposed Auditing Standard from the PCAOB:
the completion of the previous audit.Audit Evidence
The auditors should develop a written audit plan thatThere are some important changes here, and
should include a description of the nature, timing andsurprises. Some of the principles of computer
extent of the risk assessment, tests of controls, andforensics can be found in this auditing standard.
procedures that are required to be carried out.For example, evidence provided by original documents
3rd Proposed AS: Identifying and Assessing Risks ofis more reliable than evidence provided by photocopies
Material Misstatementor facsimiles, or filmed and digitized documents.
The auditor's assessment procedures apply to bothDocuments converted into electronic form are not
the audit of internal control over financial reporting andreliable. In fact their reliability depends on the controls
the audit of the financial statements. Auditors mustover the conversion and maintenance of those
obtain an understanding of the company and itsdocuments.
environment to find the activities that could have a