PREFACE—ORGANIZATION AND KEY CHANGES

This book translates the official language of Statements on Auditing Standards (SASs), Statements on Standards for Attestation Engagements (SSAEs), Statements on Standards for Accounting and Review Services (SSARSs), and the interpretations of those standards into easy-to-read and understandable advice. We designed it to help CPAs in the application of, and compliance with, authoritative standards.

RESOURCES

Wiley Practitioner's Guide to GAAS 2023 contains robust tools to help practitioners implement the standards. This book follows the sequence of sections of the AICPA Codification of Statements on Auditing Standards, the Codification of Statements on Standards for Attestation Engagements, and the Codification of Statements on Standards for Accounting and Review Services. Sections are divided into the following easy-to-understand parts:

• Scope. A handy brief identification of the original standard for the section.
• Definitions of Terms. A list of official definitions that refers readers to one of the appendices to find explanations of terms that are ordinarily scattered throughout the standards.
• Objectives. An explanation of the reasons for the section.
• Requirements. Concise listing and descriptions of those things specifically mandated by the section, and helpful techniques for complying with the fundamental requirements of the section.
• Interpretations. A summary of each interpretation.
• Illustrations. Sample reports and checklists.

RECENT AUDITING STANDARDS

Audit Evidence—SAS 142

In July 2020, the ASB issued SAS 142, Audit Evidence. This SAS supersedes AU-C 500 and amends other sections. The SAS is effective for audits of financial statements for periods ending on or after December 15, 2022, and its changes are included in this volume.

SAS 142 defines what constitutes audit evidence and lays out the attributes of information that auditors should factor into their evaluation of whether to use that information as audit evidence. Having those attributes in GAAS should also help the auditors maintain professional skepticism. Attributes of audit evidence include:

• Accuracy,
• Completeness,
• Authenticity, and
• Susceptibility to bias.

The SAS provides examples of the use of automated tools and techniques and allows their use in both risk assessment and substantive procedures concurrently. SAS 142 also moves the guidance on management's specialists from AU-C 500 to AU-C 501.

Auditing Accounting Estimates and Related Disclosures—SAS 143

SAS 143 enables auditors to address appropriately complex scenarios from accounting standards that include estimates and related disclosures and to enhance the auditor's focus on factors that drive estimation uncertainty and management biases. Particularly important are estimates related to asset impairments during the current environment of economic uncertainty and volatility.

SAS 143 is effective for audits of financial statements for periods ending on or after December 15, 2023, and its changes are referenced in the appropriate chapters.

Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources—SAS 144

In June 2021, the AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards 144, Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources. SAS 144 amends AU-C 501, Audit Evidence—Specific Considerations for Selected Items, AU-C 540, Auditing Accounting Estimates and Related Disclosures, and AU-C 620, Using the Work of an Auditor's Specialist.

The AU-C 501 amendments offer guidance on applying AU-C 540 when management has used the work of a specialist in developing accounting estimates. These changes:

• Enhance guidance about evaluating the work of the management's specialist and
• Eliminate the reference to using the work of an external inventory-taking firm as using the work of a management's specialist.

The amendments are not expected to change existing practice.

The Standard adds to AU-C 540 a new appendix, “Use of Pricing Information From Third Parties as Audit Evidence.” This appendix provides guidance on using such information as audit evidence for estimates related to the fair value of financial instruments. The appendix is based on Appendix A, “Special Topics,” of PCAOB Auditing Standard 2501, Auditing Accounting Estimates, Including Fair Value Measurements, which contains requirements for auditors of issuers.

Amendments to AU-C 620 enhance the guidance related to using the work of an auditor's specialist.

SAS No. 144 is effective for audits of financial statements for periods ending on or after December 15, 2023. Early implementation is permitted. The changes are referenced in the applicable chapters.

Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement–SAS 145

Practice monitoring programs commonly identify deficiencies in auditor risk assessment procedures. In 2020 U.S. peer reviews, the currently effective AU-C 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, was the leading source of matters for further consideration. To address those deficiencies, in October 2021, the ASB issued Statement on Auditing Standards 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. SAS No. 145:

• Supersedes SAS No. 122, as amended,
• Supersedes section 315 of the same title, and
• Amends various AU-C sections in AICPA Professional Standards.

SAS 145, for example, enhances:

• Requirements and guidance related to getting an understanding of the entity's system of internal control and assessing control risk; and
• Guidance that addresses the economic, technological, and regulatory aspects of the markets and environment in which entities and audit firms operate.

SAS 145 includes revised and new requirements and guidance, including:

• A revised definition of significant risk;
• Revised requirements to evaluate the design of certain controls within the control activities component, including general information technology (IT) controls, and to determine whether such controls have been implemented;
• A new requirement to assess separately inherent risk and control risk; a new requirement to assess control risk at the maximum level such that, if the auditor does not plan to test the operating effectiveness of controls, the assessment of the risk of material misstatement is the same as the assessment of inherent risk;A new “stand-back” requirement intended to drive an evaluation of the completeness of the auditor's identification of significant classes of transactions, account balances, and disclosures;
• Revised requirements relating to audit documentation;
• New guidance on scalability; and
• New guidance on maintaining professional skepticism.

SAS 145 is effective for audits of financial statements for periods ending on or after December 15, 2023. Early implementation is permitted. Changes are referenced in the relevant chapters.

Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards—SAS 146

SAS No. 146, Quality Management for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards, issued in June 2022, addresses

• Public interest considerations by encouraging proactive management of quality at the engagement level, emphasizing the importance of the exercise of professional skepticism, enhancing the documentation of the auditor's judgments, and reinforcing the need for robust communications during the audit.
• How the engagement partner leverages the firm's system and manages quality at the engagement level. The SAS makes clear that the engagement partner has overall responsibility for managing and achieving quality.

SAS No. 146 becomes effective for audits of financial statements for periods beginning on or after December 15, 2025.

Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance With Laws and Regulations—SAS 147

In June 2022, the ASB issued SAS 147, Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance With Laws and Regulations. The SAS clarifies the guidance related to the inquiries of a predecessor auditor about matters that will help the auditor decide whether to take the engagement. After management authorizes the predecessor auditor to respond to inquiries, the auditor must inquire about identified or suspected fraud and matters involving noncompliance. Once the auditor accepts the engagement, the auditor must document the inquiries and their results.

SAS 147 is effective for audits of financial statements beginning on or after June 30, 2023.

ATTESTATION STANDARDS

SSAE 21

In September 2020, the ASB issued Statement on Standards for Attestation Engagements (SSAE) No. 21,...