TaxCuts&JobsAct
.13 TheTaxCutsandJobsAct(TCJA)wasenactedinDecember2017 andmadesomelargechangestoU.S.taxlaw.Thecorporateincometaxrate waspermanentlyloweredto21%.TCJAeliminatedthecorporatealternative
5 Seethereportontheresultsofthesurvey, 2019:TheStateofRiskOversight,atwww.aicpa.org/ interestareas/businessindustryandgovernment/resources/erm.html.
minimumtax(AMT)andloweredtheindividualincometaxratesthrough2025. Thenewtoprateis37%,from39.6%.Thelawkeepsthesamenumberofbracketsasundercurrentlaw.ItalsokeepstheindividualAMT,withahigherexemptionthanundercurrentlaw.
.14 Section199A,enactedintheTCJA,providesadeductionofupto20% of incomefromadomestictradeorbusinessoperatedasasoleproprietorship orthroughapartnership,Scorporation,trust,orestatethroughDecember31, 2025.Section199Awasenactedtoproviderelieftosmallbusinessesthatdonot operateasCcorporationsanddidnotbenefitfromthecorporateincometax ratededuction.FinalregulationswereissuedinJanuary2019thatprovided additionalguidanceonSection199A.
.15 FASBreviseditsoriginalproposalonincometaxdisclosurerequirements duetotaxreform.Therevisedproposal,ProposedAccountingStandardsUpdate(Revised)— IncomeTaxes(Topic740):DisclosureFramework— ChangestotheDisclosureRequirementsforIncomeTaxes,wouldrequireadditionalforeignanddomesticdisclosuresofpretaxincome(orloss)fromcontinuingoperationsandbeforeintra-entityeliminations,andotherdisaggregated disclosureofincometaxexpense(orbenefit)fromcontinuingoperationsand incometaxpaid.Theproposalalsorequirespublicentitiestodiscloseunrecognizedtaxbenefits,valuationallowancerecognized,andtaxcarryforwards.As theseareonlyproposedchangesandstillsubjecttochange,readersareencouragedtoreadthefullguidanceissuedbyFASBwhenavailable.
InspectionsofBroker-Dealers
.16 ThePCAOBissuesanannualreportontheinteriminspectionprogram forbroker-dealers.Inthereport,thePCAOBconductsinspectionstoassessfirms'compliancewithapplicablelaws,rules,andprofessionalstandards whenperformingauditandattestationengagementsforbroker-dealers.Althoughengagementsofbroker-dealersareinspectedbythePCAOB,thefindingsaresimilartothoseofpeerreviewinspections.Auditorsmayusethese findingstoensuretheyarefollowingalltheapplicableguidancewhenperformingauditandattestengagements.
.17 OnAugust20,2019,thePCAOBreleasedthe2019 Annual Reporton theInterimInspectionProgramRelatedtoAuditsofBrokersandDealers.This reportincludesobservationsfromthePCAOB'sinspectionsduring2018,insightsintoapplicablestandards,andexamplesofeffectiveprocedures.Italso includesinformationabouttheselectionoffirmsandengagementsforinspectionandhistoricalresults.ThePCAOBisconsistentlyusingbothrisk-based andrandomselectionmethodstoaddressdeficienciesandindependencefindingsitdiscoveredduringitsfirminspectionin2018.Thedeficienciesnotedby thePCAOBprimarilyconsistofconcernsaboutthenetcapitalrule,thecustomerprotectionrule,revenue,fraudrisk,relatedpartytransactions,financial statementpresentationanddisclosure,receivablesandpayables,andfairvalue measurements.
AuditandAttestationIssuesandDevelopments
• Developingacomprehensiveexaminationforlicensure
• Establishingauditingstandardsfornonpublicentities
• Supportingfirmswitheducationalguidance,tools,resources,and implementationmaterials
• Monitoringthequalityofperformancewhilerequiringappropriateremedialactionwhereneeded
• EstablishingandenforcingtheAICPACodeofProfessionalConduct(thecode)
.19 In2015,theAICPAissued EnhancingAuditQuality—A6-PointPlan toImproveAudits. 6 Thisplanisaroadmapofcontinueddevelopmentofthe professiondesignedtoenhanceauditqualityinanincreasinglycomplexbusinessenvironment.TheEnhancingAuditQualityinitiative(EAQ)takesadatadrivenapproach.TheAICPAcollectsauditdatafromvarioussources,analyzingdatatouncoverauditqualitytrends.Next,ittakestargetedactions,suchas reviewingauditingstandards,toidentifywhereclarificationisneededandraisingawarenessamongauditorsandauditees.Basedonitsresearch,theAICPA thendevelopsfreetoolsandresourcessuchaspracticeaids,websites,articles, andtoolkits.
.20 ThefollowingareEAQareasoffocusfor2019.
.21 Internalcontrol. Failuretogainanunderstandingofanentity'sinternalcontroloverfinancialreportingisthemostcommonnoncomplianceissue withAU-Csection315andAU-Csection330, PerformingAuditProceduresin ResponsetoAssessedRisksandEvaluatingtheAuditEvidenceObtained.The understandingofinternalcontrolassiststheauditorindesigningandimplementingproceduresforriskassessment.Withoutproperunderstanding,the auditormaynotbeabletoidentifyriskassociatedwiththeclient'sinternal control,regardlessofthesizeoftheentity.
.22 Auditorssometimesdefaulttocontrolriskassessmentsatthemaximumlevelwithoutgaininganunderstandingoftheclient'sinternalcontrol. ThisisnotpermittedunderAU-Csection315,evenwhentheauditordoesnot intendtorelyoncontrols.Commonmisstepsthathavebeenidentifiedinclude thefollowing:
• Assumingtheclienthasnocontrols
• Notunderstandingwhichcontrolsarerelevanttotheaudit
• Stoppingafterdeterminingwhethercontrolsexist
• Defaultingcontrolriskassessmenttoacertainlevelwithoutevaluatingthedesignandimplementationofcontrols
• Failingtodesignandperformfurtherauditproceduresthateffectivelymitigateidentifiedrisksofmaterialmisstatement
.23 Becauseofthenatureandimportanceofinternalcontrol,auditors shouldfocusonavoidingthesemisstepsandobtainathoroughunderstanding ofinternalcontrolandperformappropriateproceduresinpractice.
.24 Riskassessment. Riskassessmentisakeyelementofanauditin accordancewiththestandards,anditunderliestheentireauditprocessin
6 www.aicpa.org/advocacy/state/downloadabledocuments/eaq-6-point-plan-to-improve-audits .pdf
identifying,assessing,andrespondingtorisksofmaterialmisstatement.However,arecentsurveyofpeerreviewersindicatedoverhalfof400auditswere noncompliantwiththeriskassessmentstandard.Themisconceptionthatthe auditorcanperformaqualityauditwithoutproperlyconsideringtheclient's risksofmaterialmisstatementisthedriverofnoncompliancewithprofessional standards.
.25 ProfessionalstandardsrelevanttoriskassessmentincludeAU-Csection 300,AU-Csection315,andAU-Csection330.Riskassessmentprocedures aredesignedtogatherandevaluateinformationabouttheclientandarenot specificallydesignedassubstantiveproceduresorastestsofcontrols.These proceduresmayincludecheckingwhethercorporateculture,digitaldisruption, cybersecurity,andotherkeyissuesareadequatelyconsideredintheentity's riskoversight,aswellasassessingthecomponentsandmaturityoftheentity'scyberriskassessment.Intoday'sdisruptiveenvironment,developinga dynamicauditplanbasedonthecurrentyear'sriskassessmentiskeytoa successfulaudit.
.26 Auditingaccountingestimates.Auditingaccountingestimatesof credit losses,leases,andrevenuerecognitionbecomesmorechallengingfollowingtherecentupdatesoftherelevantaccountingstandards.
.27 Threeofthebiggestchallengesareasfollows:
• Determiningwhethertheassumptionsunderlyingthoseestimatesarereasonable.Thisrequirestheapplicationofprofessional skepticismandmayincludetestingwhethertheunderlyingdata iscomplete,accurate,andrelevant.
• Understandingtherelationshipbetweenaccountingestimates andinternalcontrol.Reviewofaccountingestimatesbymanagementisanimportantprocedureforinternalcontroloverfinancial reporting.Athoroughunderstandingofwhatmanagementdoes whenreviewingaccountingestimateshelpstheauditorassessthe riskofmaterialmisstatementsrelatingtoaccountingestimates.
• Understandingthedatausedtodeveloptheaccountingestimates, especiallywhenathird-partyspecialistisinvolved.Itisessential fortheauditortoevaluateifthecompanyusedinformationappropriatelyandwhetheritprovidessufficientappropriateevidence. Itisalsoessentialfortheauditortounderstandtheprocessof gatheringtheinformationandanycontrolsoverthatprocessand totesttheaccuracyandcompletenessofthedataprovidedtothe specialist.
Theauditorshouldevaluatetheresultsofauditproceduresperformedonaccounting estimates,andidentifywhetherindicatorsofpossiblemanagement biasexist.
.28 Documentation. TheAICPAPeerReviewProgramhasfoundthat alackofdocumentationisthemostcommoncauseofmaterialnoncompliance withprofessionalstandardsinaudits.AU-Csection230, AuditDocumentation, containstheoveralldocumentationrequirements,andotherAU-Csectionsincludeincrementalspecificrequirements.Commonmisstepsincludedocumentationthatdoesn'tlinktheriskassessmentproceduresperformedwiththeproceduresperformedinresponsetotheassessedriskofmaterialmisstatement andtheresultsofthoseprocedures,andtheauditevidenceobtained.Theauditprogramsignoffmaymeetpartofthespecificrequirements;however,itis
insufficienttomeettheoverallrequirementsofthestandard.Gooddocumentationenablesanexperiencedauditortounderstandthefollowing:
• Thenature,timing,andextentofproceduresperformed.Theauditorshouldrecordthecharacteristicsofthespecificitemstested, whoperformedtheauditworkandwhensuchworkwascompleted,whoreviewedtheauditwork,andthedateandextentof review.
• Theresultsofthoseproceduresandevidenceobtained. Foraudit proceduresrelatedtotheinspectionofsignificantcontractsor agreements,theauditorshouldincludeabstractsorcopiesofthose agreementsintheauditdocumentation.
• Anysignificantfindings,issuesidentified,orprofessionaljudgmentsmade.Theauditorshoulddocumentdiscussionsofsignificantfindingsorissueswithmanagement,thosechargedwithgovernance,andothers,includingthenatureofsuchdiscussionand whenandwithwhomthediscussiontookplace.
.29 Auditdocumentationistheevidenceoftheauditor'sbasisforconclusioninanauditreport.ItisalsoevidencethattheauditwasplannedandperformedinaccordancewithGAASandapplicableregulatoryrequirements.Oral explanationbytheauditordoesnotrepresentsufficientappropriateevidence oftheworktheauditorperformedorconclusionsreached;however,itmaybe usedtoexplainorclarifyinformationcontainedintheauditdocumentation.
HelpDesk: Foradditionalinformationondocumentation,pleasevisit www.aicpa.org/documentationforfreeresources,includingaworkingpaper template,FAQs,anInternalInspectionaid,andstafftrainingmaterial.
ContacttheAICPAA&AHotlinewithquestionsat877.242.7212.
.30 Systemandorganizationcontrols(SOC).7 SOCengagementsare asuiteofserviceofferingsCPAscanprovideinconnectionwithsystem-level controlsofaserviceorganizationorentity-levelcontrolsofotherorganizations. SOCforCybersecurityisthemostrecentadditiontotheSOCsuiteofservices.
.31 Manyorganizationsfunctionmoreefficientlyandprofitablybyoutsourcingtasksorentirefunctionstootherorganizations(orserviceorganizations)thathavethepersonnel,expertise,equipment,ortechnologytoaccomplishthesetasksorfunctions.Asareminder,organizationsthatusetheservices ofserviceorganizationsareknownas userentities.Whenauserentityengages aserviceorganizationtoperformcontractactivitiesonbehalfoftheuserentity, theuserentityexposesitselftoadditionalrisksrelatedtotheserviceorganization'ssystem.Toassesstherisksassociatedwithanoutsourcedservice,managementoftheuserentityneedsinformationabouttheserviceorganization's controlsoveritssystemusedtoprovidetheservices.Forinstance,management ofauserentitymayasktheserviceorganizationforaserviceauditor'sreport
7 In2017,theAICPAintroducedthetermsystemandorganizationcontrols(SOC)torefertothe suiteofservicespractitionersmayproviderelatingtosystem-levelcontrolsofaserviceorganization andsystemorentity-levelcontrolsofotherorganizations.Formerly,SOCreferredtoserviceorganizationcontrols.Byredefiningthatacronym,theAICPAenablestheintroductionofnewinternal controlexaminationsthatmaybeperformed(a)forothertypesoforganizations,inadditiontoservice organizations,and(b)oneithersystem-levelorentity-levelcontrolsofsuchorganizations.
onadescriptionoftheserviceorganization'ssystemandthedesignandoperatingeffectivenessofcontrolsovertheserviceorganization'ssystem.Obtaining aserviceauditor'sreportfromaserviceorganizationprovidesmanagementof theuserentitywithinformationthatmaybeusefulinassessingriskwhencarryingoutitsvendoroversightandduediligence.ASOC1® reportaddresses internalcontrolsrelevanttoanauditofaserviceorganization'sclient'sfinancialstatements.ASOC2® reportaddressesaserviceorganization'scontrols thatarerelevanttoitsoperationsandcompliance.Duetothedifferencesin scopeandpurposebetweenSOC1andSOC2reports,therelatedriskconsiderationsandcontrolsthataddressidentifiedrisksaredifferent,aswell.Fora SOC1report,theriskconsiderationswouldfocusonrisksaffectingthecompletenessandaccuracy(integrity)offinancialdata;however,inaSOC2report, theriskconsiderationsmightcovertherisksoflossorunauthorizedaccessto systemsanddata.
.32 FivekeycomponentsthatareassessedinaSOC1orSOC2engagementareasfollows:
• Infrastructure.Thephysicalstructures,IT,andotherhardware
• Software.TheapplicationprogramsandsupportingITsystem software
• People.Thepersonnelinvolvedinthegovernance,operation,and useofasystem
• Processes.Theautomatedandmanualprocedures
• Data.Transactions,files,databases,andoutputofthesystem
HelpDesk: ForadditionalinformationonSOCforCybersecurity, pleasevisittheAICPASOCforCybersecuritywebsiteatwww.aicpa .org/interestareas/frc/assuranceadvisoryservices/aicpacybersecurity initiative.html.
EmergingTechnologies:WhatPractitionersNeedtoKnow
Introduction
.33 Newtechnologiesareevolvingatanexponentialrate.Thisevolutionisdirectlyaffectingtheaccountingprofessionandcreatingdisruptionon severallevels.Recenttechnologicaladvancesofferbothchallengesandopportunitiesthatwillchangethewaypractitionersoperateintotheforeseeable future.Evolvingtheauditofthefuturetowardreal-timeauditingthrough adata-drivenapproachusingnewtechnologiesanddataanalyticswillhelp maintainandenhancetherelevanceandvalueoftheauditprofession.Underpinningtheachievementofthisevolutionaretechnologiessuchasblockchain, artificialintelligence,androboticprocessautomation.Thesetechnologiesmay enablethepractitionertoperformreal-timereporting,real-timeanalysis,and havecontinuousaccesstodata.Asstatedinthearticle,"Blockchain,machine learning,andafutureaccounting"intheAugust2018issueofthe JournalofAccountancy, "Whenyoucombinemachinelearningandblockchain,yougetnothingshortofatechnologicalrevolution.It'spossibletoenvisionaworldwhere accountingandauditinghappeninrealtime,withallrelevantpartiesbeing informedeverystepoftheway—atruecontinuousaudit."
HelpDesk: Foradditionalinformationonhowemergingtechnologieshave aneffectontheaccountingprofession,seethe JournalofAccountancy article,"Blockchain,machinelearning,andafutureaccounting"online athttps://www.journalofaccountancy.com/newsletters/2018/aug/blockchainmachine-learning-future-accounting.html.
Inaddition,forinformationonhowsmallbusinessesareusingcontinuousauditingtechnology,seethe JournalofAccountancy article,"Highlightsofinternalauditresearch"(July1,2019)athttps://www.journalof accountancy.com/issues/2019/jul/internal-audit-research.html.
TheFutureAudit:MovingTowardReal-TimeAuditingWitha Data-DrivenApproach
.34 Auditingiscurrentlyatacriticaljuncture.Specifically,advancesin technology,inconjunctionwithreal-timeapproachestoconductingbusiness, arechallengingtheauditingprofession.Giventherecentadvancesinbusiness technologies,itistimetoconsiderwhetherthewaytheauditorauditshistorical financialinformationcontinuestobeappropriate.Instead,real-timesolutions maybemoresuitable. Continuousauditing isamethodologythatenablesauditorstoprovideassuranceonasubjectmatterforwhichanentity'smanagement isresponsiblebyusingacontinuousopinionschemaissuedvirtuallysimultaneouslywithorwithinashortperiodoftimeaftertheoccurrenceofevents underlyingthesubjectmatter.Althoughtheconceptofcontinuousauditingis notnewandhasbeenafocusforfirmsforseveralyears,theemergenceofnew technologiesmaymakethisareality.
.35 Traditionalauditinghaschangedconsiderablyasaresultofchanges intechnology,includingmoreadvancedenterpriseresourceplanningsystems, increaseduseofonlinetransactionswithbothcustomersandsuppliers,theuse ofthecloud,andtherapidexpansionofdataavailableforusebymanagement andauditors.Inaddition,theclient'suseoftechnologiessuchasblockchain, artificialintelligence,androboticprocessautomationaffectstheoverallaudit approach.Itisimportantthatpractitionersunderstandthesenewtechnologies soonerratherthanlater.Thecontinuouslyevolvingtechnologylandscapeleads toavarietyofauditchallengesthatcompoundovertime.However,thesenew technologiesalsocreateopportunitiesfortheintroductionofinnovativeaudit toolsandmethodologies,especiallyasfinancialsystemshavemovedtowarddecentralization,distribution,onlineposting,real-time(oratleastdaily)closing ofthebooks,andpaperlessrecordkeeping.
.36 Firmsthatsuccessfullyexploreuseofcomputer-assistedaudittools mayeventuallyconsidermoreadvancedprogramsthatcontainfunctionalities resemblingtheauditofthefuture.Theauditprocessesneedtobedesignedfrom thestarttomakeoptimaluseoftoday'stechnologytoenableauditorstoprovide themosteffectiveandefficientservicepossiblewithintheboundsofeconomic viability.Manyoftoday'sauditprocedurescanbedeconstructedintotasksthat canbeperformedwhereverismosteffective.Cloudcomputingisoneexample ofhowtasksaredeconstructedintoseparateprocessesthatmigrateoverthe internettowheretheycanbeperformedmosteffectively.Itispossiblewith today'stechnologytocontinuouslymonitor100%ofanentity'stransactionsin almostrealtimeoratleastatfrequentintervals.Thisabilitymaybeusedto
assesstheoperatingeffectivenessofautomatedinternalcontrolsortoperform substantivetests.
HelpDesk: Foradditionalinformationonthefutureofauditsandcontinuous auditing,seetheAICPApublication, AuditAnalyticsandContinuousAudit: LookTowardtheFuture.
Thisbookisacompendiumofessayswrittenbydifferentsubjectmatterexpertsthatexpandsuponthe1999CICAandAICPAresearchreporttodiscuss topicssuchasauditanalytics,thetheoryofmoderncontinuousassurance,the currentstateofcontinuousauditingandcontinuousmonitoring,theevolution ofauditingandwhatthefuturecouldlooklike,andcontinuousriskmonitoringtechniques.
Goonlinetohttps://www.aicpa.org/interestareas/frc/assuranceadvisory services/continuousassuranceworkinggroup.htmlformoreinformation.
AuditDataAnalytics
.37 Datascienceandrelatedtechnologieshaveadvancedenormouslyin recentyears,incorporatingtheories,techniques,andsoftwareapplicationsfrom manyfields,includingdataanalysis;businessintelligence;mathematicsand probability;statisticallearning,includingpatternrecognition;datavisualization;gamification;bigdataanalytics;andtextandprocessmining. Auditdata analytics isthescienceandartofdiscoveringandanalyzingpatterns,identifyinganomalies,andextractingotherusefulinformationindataunderlying orrelatedtothesubjectmatterofanauditthroughanalysis,modeling,and visualizationforthepurposeofplanningorperformingtheaudit.Auditdata analyticshasthepotentialtotransformthewayfinancialstatementaudits areconducted,makingthemsignificantlymoreeffectiveandpossiblymoreefficient.Theemphasisofintroducingtechnologytotheauditprocesshasbeen onimprovingbotheffectivenessandefficiency.Althougheffectivenesshasimproved,therehasnotbeenthequantumleapthattechnologyhasthepotential toenable.Asstatedinthearticle,"WhatI'velearnedbuildingablockchainbusiness,"fromtheAugust2019issueofthe JournalofAccountancy,"Asauditors andaccountants,wecannowgatherandverifyinformationinrealtime,which furtherenablesimprovedtransparencyandbetterdataforanalyticsandbusinessdecisions.OurrolesasCPAswillnotgoaway,buttheywilllikelychange significantly."
.38 Whatisdifferentnowisthatrecentadvancesinfundamentaldata science,vastincreasesincomputerpower,andaccesstohugeamountsofdata andinformationhaveconvergedtoprovideanenvironmentripefordataanalyticsthatcan,andis,transformingindustries.Thekeyforauditorsnowisto leveragethesecapabilitiestoincreasetheeffectivenessandefficienciesintheir auditprocesses.
HelpDesk: Foradditionalinformationonfirst-handexperiencesfrom accountingfirms,financedepartments,andothersputtingcutting-edge technologiestoworktoday,seethe JournalofAccountancy article, "WhatI'velearnedbuildingablockchainbusiness"(August1,2019). Onlineathttps://www.journalofaccountancy.com/issues/2019/aug/blockchainservices-jagruti-solanki-cpa.html
Foradditionalinformationondataanalytics,seetheAICPA's GuidetoAudit DataAnalytics,whichisintendedtoencourageauditorstovoluntarilymake moreuseoftechnology-basedauditdataanalytics.Theuseofauditdataanalyticshasthepotentialtoenhancetraditionalauditprocedures,contribute toeveryphaseoftheaudit,andofferanewwayofvisualizingandanalyzing results.
Theguideincludesvariousillustrativeexamplesdetailinghowauditdata analyticscanbeusedthroughoutthefinancialstatementaudit.
Goonlinetowww.aicpa.org/interestareas/frc/assuranceadvisoryservices/ auditdataanalyticsguide.htmlformoreinformation.
Inaddition,theAICPAAssuranceServicesExecutiveCommittee(ASEC) EmergingAssuranceTechnologiesTaskForceestablishedtheAuditData StandardWorkingGrouptodevelopastandardizeddatamodelthatfacilitatestheuseofenhancedanalytics.Duringthefirstquarterof2019,two informationalvideoswerecreatedandpostedontheAICPAwebsitebythe workinggrouptopromotethedevelopmentanduseofauditdataanalytics andillustratehowithasthepotentialtotransformandinnovatethecurrent financialstatementaudit.
AuditDataStandardsandtheFinancialStatementAudit
ThisvideoshowcasestheAICPA'sAuditDataStandardsandsomeofthe otherprojectsandinitiativesgoingonintheareaofauditdataanalytics.
UpgradetheFinancialStatementAuditWithAuditDataAnalytics
ThisvideoillustrateshowPython,anopensourceprogramminglanguage, canbeusedtoapplytheAICPA'sAuditDataStandardformattingtoadata setandhowtodeveloproutinestofurtheranalyzetheAuditDataStandard standardizeddataset.
Toaccessthetwovideosandforadditionalinformationontheauditdata standards,seewww.aicpa.org/interestareas/frc/assuranceadvisoryservices/ auditdatastandards.html.
Blockchain
.39 Blockchainisanothertechnologythatislikelytosignificantlyaffect thewaypractitionersperformaudits.A blockchain isadigitalledgercreatedto capturetransactionsconductedamongvariouspartiesinanetwork.Itisapeerto-peer,internet-based,distributedledgerthatincludesalltransactionssince itscreation.Allparticipantsusingtheshareddatabaseare"nodes"connected totheblockchain,eachmaintaininganidenticalcopyoftheledger.Everyentry intoablockchainisatransactionthatrepresentsanexchangeofvaluebetween participants.
.40 Blockchaintechnologyoffersthepotentialtoaffectawiderangeofindustries.Themostpromisingapplicationsexistwhentransferringvalueorassetsbetweenpartiesthatarecurrentlycumbersome,expensive,andrequireone ormorecentralizedorganizations.Applicationsofblockchaintechnologyare beingimplementedinmanyindustries,includingsupplychains,healthcare, andfinancialservices.Blockchaintechnologyoffersanopportunitytostreamlinefinancialreportingandauditprocesses.Today,accountreconciliations,trial balances,journalentries,subledgerextracts,andsupportingspreadsheetfiles areprovidedtoanauditorinavarietyofelectronicandmanualformats.Each
auditbeginswithdifferentinformationandschedulesthatrequireanauditor toinvestsignificanttimewhenplanninganaudit.Inablockchainworld,theauditorcouldhavenearreal-timedataaccessviaread-onlynodesonblockchains. Thismayallowanauditortoobtaininformationrequiredfortheauditinaconsistent,recurringformat.However,acautionisnecessaryhere.Beforeauditors canuseinformationobtainedfromtheblockchain,auditprocedureswillneed tobeperformedtodeterminethereliability,accuracy,andcompletenessofthe informationcontainedontheblockchain;inotherwords,theauditorwillneed toaudittheblockchaintechnology.Applicationofhealthyprofessionalskepticismisnecessarytopreventundueoverrelianceonuntestedtechnology.Althoughtheauditprocessmaybecomemorecontinuous,auditorswillstillhave toapplyprofessionaljudgmentwhenanalyzingaccountingestimatesandother judgmentsmadebymanagementinthepreparationoffinancialstatements.In addition,forareasthatbecomeautomated,theywillalsoneedtoevaluateand testinternalcontrolsoverthedataintegrityofallsourcesofrelevantfinancial information.
.41 Manyunknownsstillexistwithrespecttohowblockchainwillaffect theauditandassuranceprofession,includingthespeedwithwhichitwilldoso. Blockchainisalreadyaffectingauditorsofthoseorganizationsusingblockchain torecordtransactions,andtherateofadoptionisexpectedtocontinuetoincrease.Inaddition,auditorsshouldbeawareofopportunitiestoleveragetheir clients'adoptionofblockchaintechnologytoimprovedatagatheringduringthe audit.Asstatedinthe JournalofAccountancy article,"Blockchain,machine learning,andafutureaccounting":"There'snogettingaroundthefactthat technologieslikeblockchainandmachinelearningarenolongeratinydoton thehorizon.Thefutureishere,andaccountingprofessionalsmustbewilling toadapt."
HelpDesk: Foradditionalinformationonwhatblockchaintechnologyis andhowitisaffectingtheprofession,seethewhitepaper,"Blockchain TechnologyandItsPotentialImpactontheAuditandAssuranceProfession,"onlineatwww.aicpa.org/interestareas/frc/assuranceadvisoryservices/ blockchain-impact-on-auditing.html
YoucanalsotakeCPEcoursesrelatedtoblockchaindevelopedbytheAICPA. VisittheAICPAStoreatwww.aicpastore.com/careerpersonaldevelopment/ blockchain-fundamentals-for-accounting-and-finance/prdovr∼pcwcblcf18001/pc-wcblcf18001.jsp.
Inaddition,searchforblockchainepisodesatourGoBeyondDisruptionpodcastseriesatwww.aicpa-cima.com/disruption.
ImplicationsoftheUseofBlockchainTechnologybyService OrganizationsonSOCforServiceOrganizationExaminations
.42 InAugust2018,theImplicationsofBlockchainonSOC1andSOC 2WorkingGroupwasformedunderthedirectionofASEC.Thepurposeof theworkinggroupistodevelopguidancetohelpserviceauditorsunderstand thetypicalrisksandotherrelatedconsiderationsassociatedwithperforming aSOC1orSOC2examinationforaserviceorganizationthatusesblockchain technology.
.43 Theguidancedocumentwilladdressanexaminationinwhichtheserviceauditorwillissueanopinionontheserviceorganization'ssystem,which
usesblockchaintechnology;itdoesnotaddressanexaminationofaspecific blockchainnetworkinaccordancewiththeattestationstandards.
HelpDesk: ReadersareencouragedtobeonthelookoutforthedocumentdevelopedbytheImplicationsofBlockchainonSOC1andSOC 2WorkingGrouponceitispublished.
DigitalAssets
.44 TheAICPAformedtheDigitalAssetsWorkingGroup,ajointworkinggroupundertheAICPA'sFinancialReportingExecutiveCommitteeand ASEC,withtheobjectiveofdevelopingguidanceforfinancialstatementpreparersandauditorswithafundamentalknowledgeofblockchaintechnology onhowtoaccountforandauditdigitalassetsunderU.S.generallyaccepted accountingprinciples(GAAP)andGAAS,respectively.Theworkinggroupis splitintotwosubgroups:onefocusingonaccountingtopics,andonefocusing onauditingtopics.
.45 Eachsubgroupisdevelopingaccountingandauditingpapersthatwill bepostedtoaicpa.org.Theformatofeachoftheaccountingandauditingtopics willvarybasedonthecontextnecessarytobeprovidedtothereader.Forexample,sometopicswillbeaddressedinquestionandanswerformat,whereas othersrequiringmorecontextwillbepresentedinanarrativeformat.
AccountingSubgroup
.46 TheAccountingSubgroupisfocusedondevelopingnonauthoritative guidanceonaccountingfordigitalassetsunderGAAP.Thescopeofthecontent willincludethosedigitalassetsthataredefinedbroadlyasdigitalrecordsmade usingcryptographyforverificationandsecuritypurposesonadigitaldecentralizedledger(referredtoasa blockchain)thatkeepsarecordofalltransactions thattakeplaceacrossablockchainnetwork.Theguidanceinthispaperwill notaddressthedifferentaccountingrequirementsthatmayresultfromdifferencesintherightsandobligationsalongwithotherfactorssuchascompliance withlawsandregulations.
.47 Althoughmanydifferenttermsaregenerallyusedinthedigitalasset ecosystem,akeyconceptisthattheaccountingtreatmentforadigitalasset willultimatelybedrivenbythespecificterms,form,underlyingrights,and obligationsassociatedwiththedigitalasset.
AuditingSubgroup
.48 TheAuditingSubgroupisfocusedondevelopingnonauthoritative guidanceonauditingfinancialstatementsinaccordancewithGAAS(nonauditattestengagementsarenotcurrentlycontemplated)thatincludedigitalassets.Thecontentforeachtopicgenerallywilladdressvariousparticipantsin thedigitalassetecosystem(forexample,entitiesthatholddigitalassets,custodiansorwalletcompanies,exchanges,fundsthatinvestindigitalassets,vendorsacceptingdigitalcurrency,andminers).Eachauditingtopicwillcoverthe relevantauditingstandards,applyingthosestandardswithinthedigitalasset ecosystem,challengesspecifictotheecosystem,andproceduresanauditormay considertoaddressthoseuniquechallenges.Althoughauditorindependence andethicalrequirementsshouldbeconsideredpriortotheperformanceof
acceptanceorcontinuanceproceduresforallengagements,suchconsiderations arenotwithinthescopeofthisguidance.
HelpDesk: Forinformationregardingindependenceandethics, seetheAICPACodeofProfessionalConductatpub.aicpa.org/ codeofconduct/ethics.aspx.
ArtificialIntelligence
.49 Artificialintelligence,orAI,isthescienceofteachingprogramsand machinestocompletetasksthatnormallyrequirehumanintelligence.Artificialintelligenceisakeytechnologicaldriverthatenablesthecontinuousauditanddataanalysis—itischangingthefutureoftheauditing.Advancesin artificialintelligencetechnologyareautomatingtasksthatpreviouslyonlyhumanscouldperform,includingaccounting,tax,andauditdatagathering.Entitiesareembracingthesetechnologicaladvancesanddevelopingnewskillsets. Theyaregettinginvolvedinbigdataanddataanalytics,includingtheuseofAI technology.Itpresentsanopportunitytoautomatesystemsthatinvolvelarge amountsofnumbersanddataandprovidenewservicestocustomers.Entities arealreadyusingAItoimproveauditprocessesandpredictiveanalytics.
.50 Asstatedinthearticle,"What's'critical'forCPAstolearninanAIpoweredworld"intheJune2019issueofthe JournalofAccountancy, Artificialintelligence—andthetechnologiesinandaroundtheAI space—wasoneofthetwokeyissuesattheheartofoureighth annualgatheringofaccountingtechnologyexperts.Alsotakingcenterstageduringthediscussion:education—specifically,thetypesof skillsaccountantsmustlearntoflourishinaworldwhereAI-powered algorithmsautomatetraditional,time-consumingtasksanddatapoweredanalyticsrevealnewinsightstothosewhocaninterpretthe numbers.
HelpDesk: ForadditionalinformationonhowAIisaffectingtheprofession, seethe JournalofAccountancy articles,"What's'critical'forCPAstolearn inanAI-poweredworld"(June1,2019)and"Whypatienceisimportantwith AI"(July1,2019)onlineatthefollowinglinks: https://www.journalofaccountancy.com/issues/2019/jun/critical-cpa-skills-forai-powered-world.html https://www.journalofaccountancy.com/issues/2019/jul/artificial-intelligencetechnology-roundtable.html
.51 Inaddition,theCharteredProfessionalAccountantsofCanadaand theAICPAdevelopedawhitepaper,"ACPA'sIntroductiontoAI:FromAlgorithmstoDeepLearning,WhatYouNeedtoKnow"tobeusedasafoundational resource.Itexplainsthebuzzwordsandtermsyouhavelikelybeenhearing;discussestheevolutionofdata,AI,andcomputingpower;andhelpsyoutobegin tothinkaboutAIandhowitmightaffectyourwork.FuturepublicationsdedicatedtoAIwillrefertothisresource,asitisthefirstofaplannedseriesof publicationstoexploreAIanditseffectontheCPAprofession.
HelpDesk: Foraccesstothewhitepaper,seethefollowinglink: www.aicpa.org/content/dam/aicpa/interestareas/frc/assuranceadvisory services/downloadabledocuments/cpas-introduction-to-ai-from-algorithms .pdf
.52 AsecondAIwhitepaperintheseriesisbeingdeveloped.Readersare encouragedtobeonthelookoutforthewhitepapertitle"TheData-DrivenAudit:HowautomationandAIarechangingtheauditandtheroleoftheauditor." ThiswhitepaperwillexplorewhatauditorscanexpectfromanAI-enabledauditintermsofbenefitsandhowtheauditandtheroleoftheauditorwillevolve.
.53 AlthoughAIpresentsopportunitiesforsignificantadvancesintheway thatauditsareperformed,auditorsshouldbeawarethatnewskillsandexpertisemayberequiredandtheauditorshouldnotplaceunduerelianceonAI.
RoboticProcessAutomation
.54 Roboticprocessautomationisacombinationofroboticsandprocess automation.Althoughroboticsisusedundertheartificialintelligencebanner, itdiffersfromartificialintelligencebecauseitdoesnotencompassmachine learning,itmerelyautomatesamanualprocess.Amachineperformsworkby itself,followingasetofrulesprogrammedviacomputer.Today,thistypeofautomationismuchmorewidelyused,suchasinthetransferofdataorsystems speakingtooneanother. Processautomation isavirtualizedrobotthatmanipulatesexistingapplicationsoftwareinthesamewaythatapersoncompletes theprocess.
.55 Asstatedinthearticle,"HowCPAscanprepareforauditinginthe future,"intheDecember2017issueofthe JournalofAccountancy: Roboticprocessautomation(RPA)isalreadyrevolutionizingtheworkplace,ascomputerstakeoverclericalchoresandaccountingtasks manyprofessionalswouldhappilyhandoff.
AutomatedbusinessprocessusingRPAnotonlyexpandsauditors'capacity,but alsointroducesnewriskstothecontrolenvironment.Therefore,designingnew testingapproachesisthenewchallengeforauditors.
.56 AsisthecasewithAI,roboticspresentsopportunitiesforsignificant advancesinthewaythatauditsareperformed;however,auditorsshouldbe awarethatnewskillsandexpertisemayberequiredandtheauditorshould notplaceunduerelianceonroboticprocessautomation.
HelpDesk: Foradditionalinformationonhowroboticprocessautomation ischangingthefutureofauditing,seethe JournalofAccountancy article, "HowCPAscanprepareforauditinginthefuture,"(December6,2017)atthe followinglink:
www.journalofaccountancy.com/news/2017/dec/auditing-in-the-future201717986.html
Foradditionalinformationonmachinelearning,seethe JournalofAccountancy article,"Therobotsarenotjustcoming,theyarealreadyhere,"(April 30,2018)atthefollowinglink:
www.journalofaccountancy.com/newsletters/2018/apr/robots-alreadyhere.html
.57 Asfirmsmoveinthedirectionofreal-timeauditingandimplement auditdataanalytics,astrongunderstandingoftheunderlyingtechnologies suchasblockchain,AI,androboticprocessautomation,whichenablethismove towardthefutureofauditing,mustbeobtained.Thefutureoftheauditing landscapeischangingatarapidpace,withtheultimategoalofimplementing moreeffectiveandefficientauditprocesses.Readersareencouragedtostayup todatewithrapidlychangingtechnologiesbyvisitingwww.aicpa.org/imta.
HelpDesk: Foradditionalinformationonemergingtechnologiesandtheeffectofthemovementtowardautomatedtasks,seethe JournalofAccountancy article,"RiseoftechrequiresCPAstotrustinhumanabilities,"(March25, 2019)atthefollowinglink:
https://www.journalofaccountancy.com/newsletters/2019/mar/tech-requirescpas-trust-human-abilities.html
Inaddition,theAICPA'sInformationManagementandTechnologyAssuranceSectionhasbeencarefullycraftedtosupportallmemberswhoofferassuranceservicesandinformationmanagementsupporttotheirclientsand decisionmakerswithintheirorganization.Youwillhaveaccesstoresources thatwillenableyoutounderstandhowtheuseofdataandreportingsystemscanleadtoimprovedbusinessdecisions.Inaddition,youwillbeina uniquepositiontogainunderstandingabouthowtechnicalskillsandfinancialacumencanbeusedtoevaluatetechnologyrisksinsupportofbusiness objectives.
Cybersecurity
.58 Maliciouscyberattacksagainstpublicandprivatecompaniesandvariousagenciesofthefederalgovernmenthavehighlightedthegrowingcybersecurityrisktoorganizationsofallsizes,inallsectors.Astrustedadvisers,CPAs playamultifacetedroleincybersecurityriskmanagement:
• Theyprotectclientandcustomerdata.Withcybersecurityattacks ontheriseandCPAfirmsofallsizeshavingadditionalriskdue tocentralizinginformationformanyclientsinasinglelocation, CPAfirmsmustincreasetheirawarenessofpotentialinternal risksandtakeproactivestepstosafeguardvaluableclientand customerinformation.
• Theyadviseclients.CPAs,especiallythosewithaspecializationin ITinternalcontrols,cansharetheirexpertiseandbestpractices withclientsandhelpthemaddressrisksassociatedwithcybersecurity.
• Theyprovideassurance.Astrustedbusinessadvisers,CPAswith cybersecurityspecializationexperienceareuniquelypositionedto provideanexaminationofanentity'scybersecurityriskmanagementprogramtohelpinstillconfidenceinanentity'seffortsto addresscybersecurityrisks.
HelpDesk: AnewAICPAattestationguide, ReportingonanEntity'sCybersecurityRiskManagementProgramandControls,hasbeendevelopedto assistpractitioners.Itisavailableatwww.aicpastore.com.
AdditionalresourcesarealsoavailableattheAICPACybersecurityResource Centeratwww.aicpa.org/interestareas/frc/assuranceadvisoryservices/pages/ cyber-security-resource-center.aspx.
AuditingStandardsBoard
AuditorReportingandAmendments,IncludingAmendments AddressingDisclosuresintheAuditofFinancialStatements
.59 InMay2019,theAuditingStandardsBoard(ASB)issuedStatement onAuditingStandards(SAS)No.134, AuditorReportingandAmendments,IncludingAmendmentsAddressingDisclosuresintheAuditofFinancialStatements,aimedatenhancingtherelevanceandusefulnessoftheauditor'sreport.
SASNo.134replacesAU-Csections700, ForminganOpinionandReporting onFinancialStatements;705, ModificationstotheOpinionintheIndependent Auditor'sReport;and706, Emphasis-of-MatterParagraphsandOther-Matter ParagraphsintheIndependentAuditor'sReport.SASNo.134introducesanew section,AU-Csection701, CommunicatingKeyAuditMattersintheIndependentAuditor'sReport. SASNo.134,whichalsoamendsvariousotherAU-Csections,addressestheauditor'sresponsibilitytoformanopiniononthefinancial statementsandtheformandcontentoftheauditor'sreportissuedasaresult ofanauditoffinancialstatements.Italsoaddressestheauditor'sresponsibilities,andtheformandcontentoftheauditor'sreport,whentheauditorconcludesthatamodificationtotheauditor'sopiniononthefinancialstatementsis necessary,andwhenadditionalcommunicationsarenecessaryintheauditor's report.
.60 SASNo.134wasdevelopedinconsiderationofthefollowingissues:
• Althoughusersvaluethe"pass/fail"natureoftheauditor'sopinion,theywouldliketheauditor'sreporttoprovidegreatertransparencyintotheaudit.
• Userswouldliketheauditor'sreporttoincludemoreinformation aboutareaswithhigherassessedrisksofmaterialmisstatement, areasthatinvolvesignificantjudgmentbymanagementandthe auditor,andareasthatrelatetosignificanteventsortransactions.
• Toaddressthelong-standing"expectationsgap,"usersandother stakeholderswouldliketheauditor'sreporttoexpandthedescriptionsoftheauditor'sresponsibilitiesinfinancialstatementauditingandmanagement'sresponsibilitiesinfinancialstatement preparation.
.61 SASNo.134isdesignedtoenhancethecommunicativevalueofthe auditor'sreportandalignGAASwiththestandardsissuedbytheIAASBand PCAOB.SASNo.134willbenefitusersofauditedfinancialstatementsbyplacingtheauditor'sopinionatthefrontofthereportforaddedvisibilityandprovidingnecessarytransparencyintothebasisfortheauditor'sopinionandthe responsibilitiesofbothentitymanagementandauditors.
.62 SASNo.134requiresthatthe"Opinion"precedethe"BasisforOpinion" sectionintheauditor'sreport,andthe"BasisforOpinion"sectionshould includeastatementthattheauditorisrequiredtobeindependentoftheentityandtomeettheauditor'sotherethicalresponsibilities.Keychangesmade inregardtoAU-Csection700includeenhancementofauditorreportingrelatingtogoingconcern.Also,adescriptionoftheauditor'sresponsibilitieshas beenexpanded.Theseresponsibilitiesincludeprofessionaljudgmentandprofessionalskepticism,andtheauditor'scommunicationwiththosechargedwith governance.
.63 AU-Csection701addressestheauditor'sresponsibilitytocommunicate keyauditmatters(KAMs)intheauditor'sreportwhentheauditorisengagedtodosounderthetermsoftheengagement.GAASdoesnotrequirethe communicationofKAMs.WhenengagedtoincludeKAMs,AU-Csection701 addressesboththeauditor'sjudgmentaboutwhattocommunicateintheauditor'sreportandtheformandcontentofsuchcommunicationofKAMs.
.64 AU-Csection705alignstheformandcontentofthereportwiththe changesinAU-Csection700whentheauditorconcludesacleanauditor'sopinioninaccordancewithAU-Csection700isnotappropriate(qualified,adverse, ordisclaimerofopinion).AU-Csection705doesnotchangetheexistingrequirementsregardingcircumstancesinwhichamodificationoftheauditor's opinionisrequiredandfordeterminingthetypeofmodificationtotheauditor's opinion.
.65 AU-Csection706addressesadditionalcommunicationsintheauditor'sreport(emphasis-of-matterandother-matterparagraphs).Thissection clarifiestherelationshipbetweenemphasis-of-matterparagraphsandthecommunicationofKAMs.WhenAU-Csection701applies,theuseofanemphasisof-matterparagraphisnotasubstituteforincludingthematterintheKAM sectionifthemattermeetsthedefinitionofKAM.Thissectionalsorequiresthe auditortousetheappropriateheadingfortheemphasis-of-matterparagraph.
.66 SASNo.134alsocontainsotheramendmentstocertainAU-Csections:
• AmendsAU-Csection260, TheAuditor'sCommunicationWith ThoseChargedWithGovernance.Theseamendmentsrequirethe auditortocommunicatewiththosechargedwithgovernance aboutcircumstancesthataffecttheformandcontentoftheauditor'sreport.Theamendmentsalsoincludeapplicationmaterial thatprovidesexamplesofmattersforwhichcommunicationwith thosechargedwithgovernancemaybeimportantpriortoissuance oftheauditor'sreport.
• AmendsAU-Csection210, TermsofEngagement.Theamendmentsmodifytheapplicationmaterialrelatingtotheformand contentoftheengagementletterandtheexampleauditengagementlettertobeconsistentwiththechangestotheelementsof theauditor'sreportinAU-Csection700.
• AmendsAU-Csection570, TheAuditor'sConsiderationofanEntity'sAbilitytoContinueasaGoingConcern.Newamendments requireaseparatesectionintheauditor'sreportwhensubstantialdoubtabouttheentity'sabilitytocontinueasagoingconcern exists(orhasevenbeenalleviatedbymanagement'splans),but thefinancialstatementsdonotadequatelydisclosethismatter.
• AmendsvariousAU-Csectionstofocusauditorattentionondisclosuresthroughouttheauditprocessandtoenhanceapplication materialtoassistauditorsinaddressingchallengesarisingfrom theevolvingnatureofdisclosures.
.67 SASNo.134becomeseffectiveforauditsoffinancialstatementsfor periodsendingonorafterDecember15,2020.Earlyimplementationisnot permitted.
HelpDesk: NewSASs,includingSASNo.134,areavailableforauditorstoreadandconsiderinordertoadequatelyprepareforimplementation.TheycanbeviewedonAICPA'swebsiteunderrecentlyissued standards.
OmnibusStatementonAuditingStandards—2019
.68 InMay2019,theASBissuedSASNo.135, OmnibusStatementon AuditingStandards—2019.SASNo.135isintendedtoalignASBguidance morecloselywiththatofthePCAOB.TheomnibusSASincludesamendments toAU-Csection550, RelatedParties;AU-Csection240, ConsiderationofFraud inaFinancialStatementAudit;andAU-Csection260.
.69 TheamendmentstoAU-Csection550addoramendrequirements andapplicationmaterialwithafocusonrelatedpartiesandrelationshipsand transactionswithrelatedparties.Theamendmentaccomplishesthefollowing:
• Enhancesrequirementstoidentifypreviouslyunidentifiedor undisclosedrelatedpartiesorsignificantrelatedpartytransactions
• Enhancestheauditor'sresponsetotherisksofmaterialmisstatementassociatedwithrelatedpartyrelationshipsandtransactions,includingprocedurestotesttheaccuracyandcompleteness oftherelatedpartyrelationshipsandtransactionsidentifiedby theentity,takingintoaccounttheinformationgatheredduring theaudit
• Providesapplicationmaterialregardingtheenhancedrequirementsaswellasadditionalexamplesofsignificantrelatedparty findingsandissuesthatmaybecommunicatedtothosecharged withgovernance
.70 SASNo.135incorporatesmaterialfromthePCAOB'sAuditingStandard(AS)1301 8 intoAU-Csection260.Theamendmentsrequiretheauditor tocommunicatewiththosechargedwithgovernancetheauditor'sreviewsof policiesandpracticesthatmanagementusestoaccountforsignificantunusual transactionsandtheauditor'sunderstandingofthebusinesspurposeforsignificantunusualtransactions.Theamendmentsalsoaddrequirementstocommunicatethepotentialeffectsofuncorrectedmisstatementsonfutureperiod financialstatementsunderaudit.
.71 TheamendmentstoAU-Csection240includetheterm significant unusualtransactions andaddrequirementsrelatedtothepotentialexistence
8 AllASsectionscanbefoundin PCAOBStandardsandRelatedRules.
ofthosetransactions.SASNo.135defines significantunusualtransactions as "significanttransactionsthatareoutsidethenormalcourseofbusinessforthe entityorthatotherwiseappeartobeunusualduetotheirtiming,size,ornature."Thisamendmentaddsrequirementsforbasicproceduresforobtaining informationforevaluatingsignificantunusualtransactions,andguidanceand conformingchangesrelatedtosignificantunusualtransactions.Aspartofthe existingrequirementtoaddresstheriskofmanagementoverrideofcontrols, SASNo.135requirestheauditortoevaluatewhetherthebusinesspurpose(or lackthereof)ofsignificantunusualtransactionssuggeststhattheymayhave beenenteredintotoengageinfraudulentfinancialreportingortoconcealmisappropriationofassets.Theproceduresshouldincludethefollowing:
• Readingtheunderlyingdocumentationandevaluatingwhether thetermsandotherinformationaboutthetransactionareconsistentwithexplanationsfrominquiriesandotherauditevidence aboutthebusinesspurpose(orlackthereof)ofthetransaction
• Determiningwhetherthetransactionhasbeenauthorizedand approvedinaccordancewiththeentity'sestablishedpoliciesand procedures
• Evaluatingwhethersignificantunusualtransactionsthattheauditorhasidentifiedhavebeenproperlyaccountedforanddisclosed inthefinancialstatements
.72 TheSASbecomeseffectiveforauditsoffinancialstatementsforperiods endingonorafterDecember15,2020.Earlyimplementationisnot permitted.
ForminganOpinionandReportingonFinancialStatementsof EmployeeBenefitPlansSubjecttoERISA
.73 InJuly2019,theASBissuedSASNo.136, ForminganOpinionand ReportingonFinancialStatementsofEmployeeBenefitPlansSubjecttoERISA (AU-Csec.703),toaddresstheauditor'sresponsibilitytoformanopinionon thefinancialstatementsofemployeebenefitplanssubjecttotheEmployeeRetirementIncomeSecurityActof1974(ERISA).Italsoaddressestheformand contentoftheauditor'sreportissuedasaresultofanauditofERISAplan financialstatements.
.74 ThisSASappliestoanauditofacompletesetofgeneralpurposefinancial statementsofemployeebenefitplanssubjecttoERISA.Althoughall AU-Csectionsapply,thisSASaffectstheguidanceincertainAU-Csections. Therefore,thefollowingAU-CsectionsarenotapplicabletoanauditofERISA planfinancialstatements:
• AU-Csection700
• Paragraph.09ofAU-Csection725, SupplementaryInformation inRelationtotheFinancialStatementsasaWhole
.75 ThenotablechangesofSASNo.136includetheamendmentsofSAS No.119, SupplementaryInformationinRelationtotheFinancialStatementsas aWhole;varioussectionsinSASNo.122, StatementsonAuditingStandards: ClarificationandRecodification,asamended;andSASNo.132, TheAuditor's ConsiderationofanEntity'sAbilitytoContinueasaGoingConcern.SASNo. 136includesnewrequirementsforauditsofERISAplanfinancialstatements relatedtothefollowing:
• Engagementacceptance. SASNo.136addsrequirementsinadditiontothosealreadyinAU-Csection210fortheauditortoobtain theagreementofmanagementthatitacknowledgesandunderstandsitsresponsibilityrelatedtothefinancialstatements.
• Auditriskassessmentandresponse.SASNo.136requirestheauditortoobtainandreadthemostcurrentplaninstrumentforthe auditperiod,andwhendesigningandperformingauditprocedures,theauditorshouldconsiderrelevantplanprovisionsthat affecttheriskofmaterialmisstatement.
• Communicationswiththosechargedwithgovernance.Theauditor shouldcommunicateinwritingtothosechargedwithgovernance, onatimelybasis,reportablefindingsfromtheauditprocedures performed.
• SpecialprovisionsforERISASection103(a)(3)(C)audits.When managementelectstohaveanERISASection103(a)(3)(C)audit, theauditorshouldevaluatemanagement'sassessmentofwhether theentityissuingthecertificationisaqualifiedinstitutionunder DepartmentofLaborrulesandregulations.
• Writtenrepresentations.Inadditiontothewrittenrepresentation requirementsinAU-Csection580, WrittenRepresentations,the auditorshouldrequesttherequiredwrittenrepresentationfrom managementintheauditofERISAplanfinancialstatements.
• Reporting.Thenotablechangeincludesthenewformofopinion whenanERISApermittedauditscopelimitationexists.However, thelimitedscopelimitationdoesnotexempttheplanfromthe requirementtohaveanaudit.
.76 EffectiveforauditsofERISAplanfinancialstatementsforperiods ending onorafterDec.15,2020,SASNo.136appliesonlytoauditsofemployee benefitplansthataresubjecttoERISA.Earlyimplementationisnotpermitted.
TheAuditor’sResponsibilitiesRelatingtoOtherInformationIncludedin AnnualReports
.77 InJuly2019,theASBissuedSASNo.137, TheAuditor'sResponsibilitiesRelatingtoOtherInformationIncludedinAnnualReports (AU-Csec. 720).SASNo.137addressesenhancingtransparencyrelatingtotheauditor's responsibilitiesforotherinformationincludedinannualreportsandreducingdiversityinpractice.Italsoincludesauditorperformanceandreporting requirements.SASNo.137providesthatotherinformationisfinancialornonfinancialinformation(otherthanfinancialstatementsandtheauditor'sreport thereon)includedinanentity'sannualreport.Otherinformationmayinclude amountsorotheritemsthatareintendedtobethesameas,tosummarize,orto providegreaterdetailaboutamountsorotheritemsinthefinancialstatements andotheramountsoritemsaboutwhichtheauditorhasobtainedknowledge intheaudit.
.78 SASNo.137supersedesSASNo.118, Other InformationinDocuments ContainingAuditedFinancialStatements,amendedandcodifiedinAU-Csection720, TheAuditor'sResponsibilitiesRelatingtoOtherInformationIncluded inAnnualReports.Thechangesmadeincludethefollowing:
• ClarifyingthescopeofdocumentstowhichtheauditorshouldapplytheproceduresrequiredinAU-Csection720.
