In 2006, the AICPA Auditing Standards Board (ASB) issued eight Statements on Auditing Standards (SAS) relating to the assessment of risk in an audit of financial statements:
- SAS No. 104, Amendment to Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures (“Due Professional Care in the Performance of Work”)
- SAS No. 105, Amendment to Statement on Auditing Standards No. 95, Generally Accepted Auditing Standards
- SAS No. 106, Audit Evidence
- SAS No. 107, Audit Risk and Materiality in Conducting an Audit
- SAS No. 108, Planning and Supervision
- SAS No. 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
- SAS No. 110, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
- SAS No. 111, Amendment to Statement on Auditing Standards No. 39, Audit Sampling
These Statements established standards and provided guidance concerning the auditor’s assessment of the risks of material misstatement (whether caused by error or fraud) in a financial statement audit, and the design and performance of audit procedures whose nature, timing, and extent are responsive to the assessed risks. Additionally, the Statements established standards and provided guidance on planning and supervision, the nature of audit evidence, and evaluating whether the audit evidence obtained afforded a reasonable basis for an opinion regarding the financial statements under audit.
The primary objective of these Statements was to enhance auditors’ application of the audit risk model in practice by specifying, among other things:
- More in-depth understanding of the entity and its environment, including its internal control, to identify the risks of material misstatement in the financial statements and what the entity is doing to mitigate them.
- More rigorous assessment of the risks of material misstatement of the financial statements based on that understanding.
- Improved linkage between the assessed risks and the nature, timing, and extent of audit procedures performed in response to those risks.
Aline4IA™ enables auditors to efficiently and effectively address their obligations under the new standards by:
- Providing a platform that will enable the audit firm to address the three Standards of Field Work – planning/supervision, understanding the entity and its environment, documenting that it has obtained sufficient, appropriate audit evidence (SAS No. 105).
- Utilizing a top-down, risk-based approach to assess the relative risk of each account and its relevant assertions (SAS No. 106).
- Permitting the objective assessment of risks to internal control over financial reporting (ICFR) via a series of factors impacting the control structure and the financial reports (SAS No. 107).
- Creating effective and efficient supervision of the audit by enabling audit managers to remotely review and approve the staff field work via its web-based platform and electronic work flows over documentation and assignments (SAS No. 108 and 110).
- Providing a holistic view of the organization’s control structure by cycle and process, and the risks they mitigate, and the accounts and assertions impacted (SAS No. 109).
- Embedding a testing methodology, designed by the consulting firm of AC Lordi, which utilizes ICFR risk and suggests nature, timing, and extent of tests for each control based on its relative risk (SAS No 110).