In conjunction with its efforts to clarify generally accepted auditing standards for audits of nonpublic companies and to converge such standards with International Standards on Auditing (ISAs), the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants recently issued a proposed Statement on Auditing Standards (SAS), External Confirmations. The proposed SAS has been drafted using ISA No. 505, External Confirmations, as a base. The two standards are very similar; however, the ASB has retained the presumptive requirement to use external confirmation procedures for accounts receivable, while ISA No. 505 does not include a similar requirement.
If finalized, the ASB's proposed SAS would supersede SAS No. 67, The Confirmation Process. The proposed SAS is not expected to change current practice in any significant respect; however, there are some proposed revisions to the existing standard, the most significant of which are summarized as follows:
- The proposed SAS address the responsibilities of the auditor when management refuses to allow the auditor to send a confirmation request. These responsibilities include communicating with those charged with governance if the auditor concludes that management’s refusal is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures. These procedures are not currently required by SAS No. 67.
- The ASB has added application material to the proposed SAS regarding the use of oral responses to confirmation requests as audit evidence. This guidance clarifies that the receipt of an oral response to a confirmation request does not meet the definition of an external confirmation. These paragraphs provide guidance on how the response may be considered part of alternative procedures performed to obtain sufficient appropriate audit evidence.
- The ASB has expanded the ISA definition of an external confirmation to include direct access by the auditor to information held by a third party.
If finalized, the proposed SAS would be effective for audits of financial statements for periods beginning on or after December 15, 2010. This effective date is provisional but will not be earlier than December 15, 2010.
The Exposure Draft is available for comment until August 31, 2009
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