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The American Institute of Certified Public Accountants' Auditing Standards Board (ABS) June 11 proposed two exposure drafts on audit quality control issues to align with its clarity project and also with international audit standards.
The first exposure draft—proposed Statement on Auditing Standards, Quality Control for an Audit of Financial Statements—would supersede SAS 25, The Relationship of Generally Accepted Auditing Standards to Quality Control Standards.
The revamped SAS 25 also is intended to comport with the ASB's clarity-in-drafting effort and to converge with International Standards on Auditing, the ASB said.
The second proposal—proposed Statement on Quality Control Standards (SQCS), A Firm's System of Quality Control (Redrafted)-would supersede SQCS 7, A Firm's System of Quality Control. The proposed redraft will not “change or expand” the existing standard “in any significant effect,” the ASB said.
The ABS requested comments on both proposals by Aug. 31. Both would be effective beginning on or after Dec. 15, 2010.
For the revamped SQCS 7, “certain requirements that are duplicative of broader requirements in SQCS No. 7 have been moved to application and other explanatory material, consistent with [International Standards on Quality Control] No. 1,” the ASB said. “In the ASB's view, this has not changed the overall effectiveness of the proposed SQCS.”
When it was issued in October 2007, the original SQCS obligated a firm unconditionally to devise controls providing “reasonable assurance” that it and its personnel adhered to audit professional standards and to regulatory and legal requirements. It required an “engagement quality control review” that would have someone not part of the audit engagement team evaluate objectively the judgments the team made in conducting the audit and the conclusion the team reached in developing its audit report.
The new SQCS 7 proposal also contains a requirement “that procedures established for dealing with differences of opinion should enable a member of the engagement team to document that member's disagreement with the conclusions reached” comes after appropriate consultation.
The ASB also notes that the new SQCS 7 proposal lacks some of the specific requirements for engagement quality control reviews that the Public Company Accounting Oversight Board has proposed as part of its Proposed Auditing Standard—Engagement Quality Review that would apply to public companies registered with the Securities and Exchange Commission. The ASB is asking whether these or other engagement quality control review requirements should be included in its proposal.
Among the changes in the proposed revision to SAS 25, guidance on planning an audit were eliminated. The ASB said that “it is expected that these requirements and guidance will be included in proposed SAS, Quality Control for Audit Engagements,” when that proposed SAS is prepared.
Overall, the proposed SAS 25 “should not result in a change to existing practice; however, the proposed SAS would strengthen existing standards by making it easier for auditors to understand and apply those quality control procedures that apply to an audit of financial statements,” ASB said.
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